Monday, January 28, 2008

4 tips for Prosper lenders

Amy Hoak, who wrote 4 tips for Prosper borrowers for the Wall Street Journal, now has 4 tips for Prosper lenders. Here are Amy's four tips with my comments.
  • Understand the model - Which one - Prosper, Lending Club, Zopa, or Virgin Money?
  • Listen to the stories but don't ignore risk - I recommend Matt's article about risk management for a better understanding of this advice.
  • Diversify risk - Few follow this advice. We found most Prosper lenders do not diversify. In fact, a full 70% have less than 20 loans.
  • Start small - You often hear veteran lenders wish they started smaller. For example, Rateladder who runs several p2p lending sites and is the editor of the official Prosper blog said, "I have been lending since July 2006. I, like many, made some early mistakes in my lending strategy. Even though I was bidding on the better credit grades I didn’t pay close enough attention to other extended credit parameters… I continually adjust my bidding strategy and expect that my ROI (as estimated by both sites mentioned above) will continue to show improvement in the future."

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