Prosper Marketplace – September 2013 Update

Getting closer! We are now in the fall as I catch up from on my monthly updates after this summer’s blogging break.

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. Let’s see how September turned out.

Prosper – Taxable Account
Prosper Marketplace - Main Screen - September 2013

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In September, my Prosper account continued its strong performance and matched Augusts’ net interest number with a total net interest income received of $17.89. Since last month’s $300 contribution, almost all of it is in process and is awaiting the issuance of notes. I would expect to see my net interest jump up sometime in the next month or two once these notes get issued.

As with my taxable Lending Club account, when late notes start going into default and getting charged off, the monthly swings in net interest received will be significant, and will possible turn the number negative. That being said, given my goal of $120 from Prosper in net interest for 2013, my progress towards this goal has been phenomenal so far as I’ve already hit $64.14 in net interest. However, it is only a matter of time before my risk level results in a defaulted note. Considering I still have no late notes yet in this account, I am hoping to close the year out without any defaults or charge offs.

As a reminder, just like with my Lending Club accounts, I track 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 17.02%. Given the anticipated returns of around 15-16% given my investment criteria, I am assuming this number will increase as the account matures, then drop once the late notes start to hit. The real test will be once my notes start hitting the “seasoned” age of 10 months. At the end of September the average age of my notes is 99 days. Looking below now, take a look at the details of the account as it stands now.

Prosper Marketplace - Details Screen - September 2013

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Currently, I have available cash of $35.55 with 11 notes pending. My account currently holds 45 active notes with one paid in full. As I mentioned last month, having that one note paid off early is a bit disappointing as it really prevents me from maximizing my returns. Early payoffs increase cash drag and reduce returns. Again, as I have done with Lending Club, I will continue to roll the payments I receive into additional loans at $25 per note.

Given my overall risk of the notes in which I’ve invested, now 21.77% at acquisition, there will most certainly be late notes in this account. With Prosper, the selling of late 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 September, as I said above, I earned $17.89 of net interest, increasing my internal rate of return (IRR) since opening the account to 15.60% from 14.34%. I calculate my IRR using Excel’s XIRR function. The increase 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 continue to increase as the effects of that initial cash drag minimize, as well as any additional contributions get invested quickly. It will continue to increase until late notes and defaults hit the account.

Isolating the month of September, my overall internal rate of return came out to be annualized 17.42%. This dropped from last month because of the idle cash that was contributed at the end of August. While still high, I view even 17.42% as unsustainable, but I’m glad for such a short snapshot of time it was positive! I am looking forward to growing this account so that the compounding will be much more noticeable, as well as the ability to absorb late loans and defaults.

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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