Prosper – July 2013 Update

As part of my effort to catch up from my blogging hiatus this past summer I am going back and posting my monthly updates.

After investing with Lending Club for four years, I decided to diversify my peer-to-peer lending asset class and make an investment with Prosper. Having been bullish on peer-to-peer lending since opening that Lending Club account back in 2009, I am excited to see how my investment in Prosper grows over the next several years. In order to bring some level of transparency to my investments, each month I plan on providing an update on how my Prosper investment is performing. While a bit delayed, this is my second Prosper update. Let’s see how July turned out.

Prosper – Taxable Account
Prosper Taxable - Main Screen - July 2013

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As of the end of July, my taxable account with Prosper, now fully invested, grew the total net interest income to $17.21. As my account is small, the overall “snowballing” process of increasing my net interest income will rely on new contributions to see any significant gains in the short-term. As such, I would anticipate receiving $17-18 per month in net interest, assuming there are no defaults or charged off loans. Given my goal of $120 from Prosper in net interest for 2013, I believe I’ve made a great start with my first two months coming in at a total of $28.36. However, with inevitable late loans and defaults on the horizon, this will be a tough goal to hit.

As with my Lending Club accounts, I am tracking net interest, which is the total interest received less any fees, defaults and charged off loans. Prosper actually makes this process easier as I calculate my return on an actual account balances while ignoring accrued interest, which Prosper does not include in the account balance.

As you can see above, Prosper has provided an all notes return figure of 13.35%. Given the anticipated returns of around 15-16% from my investment criteria, I am assuming this number will increase as the account matures.  Looking below now, take a look at the details of the account as it stands now.

Prosper Taxable - Details Screen - July 2013

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Currently, I have available cash of $34.39 with one note still pending, giving me available cash of $9.39. Again, as I have done with Lending Club, I will continue to roll the payments I receive into additional loans at $25 per note. I have now had one note payoff early, which is a bit disappointing as it really prevents me from maximizing my returns. Early payoffs increase cash drag and reduce returns.

Given my overall risk of the notes in which I’ve invested, now 21.60% at acquisition, there will most certainly be late notes in this account. With Prosper, the selling of these loans is not an option, so I will be continuing my buy and hold strategy, by default. Naturally as I continue to track the performance of this account, you will see how these notes perform and what my default rates end up being.

Prosper Summary

As for my earnings, during July, as I said above, I earned $17.21 of net interest, giving me an initial internal rate of return since opening the account of 11.87% using Excel’s XIRR function. This is a significant jump from last month’s 6.98%. The jump is purely a result of the additional month of interest earned while getting further away from the initial cash drag period when I opened the account. I am expecting this to increase as the effects of that cash drag minimize.

Isolating the month of July, my overall internal rate of return came out to be annualized 21.98%. Unsustainable, but I’m not complaining! With such a short time frame and smaller account, the swings in this rate of return could be large as a default could wipe out an entire month of interest income. All of this is to be expected, as I mentioned before, given my overall higher risk profile of the notes I am investing in currently.

I have updated my Prosper page with this information.

Interested in investing (or borrowing for that matter) with Prosper? Feel free to check them out!

Have questions about peer-to-peer lending? Just ask!

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