David Lê, ThinkViet

Now that more people have learned about Prosper.com, they’ve been asking: “How do I lend money on Prosper?” Prosper is a great way to earn a fair return. And when you have lots of small loans rather than one or two big ones, you spread your risk out for a more reliable return. It’s called diversification and the pros do it every day. Here’s how it works.

First, browse through the Prosper marketplace of loan listings to find ones with attractive rates. You will find loan requests with many different amounts, interest rates people are willing to pay, the credit grades of the borrowers, the reasons they need the loans, the groups they belong to, and other information that will allow you to make a decision on whether to bid on the loans or not. Once you’ve selected a loan listing you like, you can bid the amount you’re willing to fund toward that borrower’s loan and the lowest interest rate you’re willing to accept. Prosper takes all of the bids with the lowest interest rates and combines them into one single loan amount matching the loan request.

If you are a winning bidder, the money you’ve agreed to fund toward the borrower’s loan is taken out of your account when the bidding ends and the loan is funded. Each month Prosper deducts the borrower’s payment from his bank and deposits your share into your account, automatically, without you having to do anything. This process is repeated with other borrowers with whom you have loans. So while you may have funded many small amounts to many different borrowers, you will not have to collect their monthly payments yourself, it’s all done automatically each month for you by Prosper.

What If A Borrower Is Delinquent Or Defaults?

If a borrower doesn’t pay, Prosper alerts his or her group leader first. If the borrower is late and doesn’t make up the missed payment, the group’s reputation – which Prosper lenders consider when bidding on listings – will also suffer. Prosper also notifies the credit bureau and the borrower’s credit record is affected. In a worst case scenario, if a borrower defaults, his credit rating will fall, and your loan will be written off. That’s why lenders often fund smaller loans to lots of people, just like professional lending institutions: spreading more money across more borrowers means less risk and a more reliable return.

How Can You Prevent Defaults?

Here’s a few techniques for reducing risks when bidding your money on Prosper:

• Select lower-risk borrowers: pick higher credit rates borrowers only (AA, A, B), with less than 20% debt to income ratios.
• Select group members only as borrowers: loyalty towards other group members or their group leader should encourages borrowers to make payments on time and to avoid defaulting.
• Fund many small loans: the more loans you have, the less risk you take compared to lending to just one or a few. It doesn’t cost more to fund loans to a lot of borrowers than to just one. In fact, you can place your bids automatically using standing orders (where you pre-select your lending criteria), thus minimizing the actual time you have to spend looking for suitable loan listings and making bids on them.
• Understand borrower risk profiles: on Prosper, you can find performance, delinquency, and default data on loans. You can gain a better understanding of the dynamics of the Prosper marketplace, and use this knowledge to minimize the risk taken on borrowers.

The Prosper marketplace is therefore a very attractive, exciting system to fund loans to other people and earn a fair interest on your money. Find out more about this “Play Hui On The Net” phenomenon by browsing the webpage Managing a Prosper Loan Listing. You can also join one of several Vietnamese groups already set up on Prosper, among them the ThinkViet group, and become a lender helping out Vietnamese borrowers you’ll find on Prosper.

David Le is in charge of marketing and public relations at ThinkViet. He can be reached at david@thinkviet.net.