Borrower Gets Funded on 57th Try

This is one for all of you Prosper borrowers that have not gotten a loan funded on the first try, get discouraged, quit and never come back. That's not the case for Prosper borrower mvbrothers2 who tried to get their listing funded an incredible 57 times before finally getting the loan.

I didn't believe it when I heard about it, but I saw it for myself. The loan finally funded on July 15th. The 3 pages of expired and withdrawn listings date all the way back to Febuary 2007, a total of 17 months of trying!

So, for all of you borrowers that think it will never happen, maybe you too will get a single lender to fund your entire loan like this one after 57 tries.

Subscribe to this blog's RSS feed

If you are a Prosper lender but also have a loan, here is something interesting I learned recently: you can make a payment on your loan directly from your Prosper account.

I wasn't aware this was possible. I have always had my payments automatically deducted from my account and never bothered to look at the "make a payment" link under My Account > Borrowing. But when I was researching the recent post I wrote on "Snowflaking" I discovered this was in fact possible so I thought I would pass it on to those that didn't know including me.


I've acutally withdrawn money from my Prosper account to my bank account in preperation for a payment, now I don't have to because you have 2 options for making a payment:

• Paying down your loan by a certain amount
• Making your next payment

I'm going to start using this!

Snowflaking is a way to save on interest. The general principle is to pay in a small extra amount towards a loan every month, a $5 snowflake here, a $10 snowflake there starts to build into a snowball which, if rolled downhill, compounds. These small amounts might not seem like much but they definitely add up.

This process is traditionally used for reducing credit card payments but it’s also viable for a Prosper loan since any snowflake you put in will reduce the overall interest you’ve spent for the entire term of the loan. You will also end up paying it off early.

You will see below that that snowflaking is more valuable the higher your interest rate goes

For Example

Let’s look at a very simple example of how this process can save you money. Let’s say you got the minimum amount possible for a Prosper loan, $1000 and let’s say it was at 9%. Lets snowflake at a 1% rate, meaning that you put in an extra $10 (which is 1% of the loan amount) a month towards the principle, and see what happens:

• Your 36 month loan term has been shortened to 27 month
• Your total interest paid has been reduced from $144 to $106, a savings of 38$ which adds up to a savings of 27% on interest
• That’s %3.8 of the $1000 principal

It may not seem like a huge amount, but if you pay a higher rate see below, it gets better.

Scaling it out

Now, a $1000 loan is not a lot of money, and $10 is not a lot extra to pay in, but if you scale the 1% rule up you save a lot more money. If you borrowed $10,000 and snowflaked at a 1% rate ($100 extra a month) you’d save almost $400 in interest payments!

Scale it up to the maximum loan amount for a Prosper loan of $25,000 and, at 9%, you’d save $1,000 in interest… nothing to sneeze at.

Scaling it up

I mentioned it gets better. We looked at how much you can save on a Prosper loan by looking across different loan amounts. What happens if we look vertically at different interest rates as they go up, how much more will you save?

Turns out a lot. Let’s start with that $1,000, and let’s say that interest rate is 25% instead of the 9% rate used above:

• Your 36 month loan term is still shortened to 27 months
• Your total interest paid has been reduced from $431 to $309, a savings of a whopping $122 which adds up to a 29% reduction on interest
• $122 on $1,000 is 12.2% of the principal!

Now that we are scaling these calculations up to higher interest rates, lets scale it out again for higher loan amounts:

At $10,000 and 25% interest, the 12.2% still applies, so you’ve saved $1,222 in interest payments. That’s a lot of money.

At the $25,000 maximum the savings are a whopping $3050!

The 1% rule

I like the 1% rule because it’s easy to calculate and easy to do. No matter how much you borrow and no matter how much your interest rate, a 36 month Prosper loan will always be reduced to 27 months by simply paying 1% of the loan amount on top of your regular payment.

Endorsements are a useful tool to help get potential lenders interested in your Prosper loan. There are a few ways to get the most out of this technique which can sometimes make the difference in whether your loan gets funded.

Endorse early

First, get your endorsements in line before you create your listing. Sometimes you want a relative or friend to endorse you, in which case they have to join Prosper. Get this done in advance of your loan's initiation so the endorsement is there from the beginning.

The objective here is to get people interested in your loan early because a loan with early bids will attract much more attention (thus dramatically increase the chances of funding) than one that starts getting funded late. Endorsements as a desperate attempt to generate bids often fails.

What to say

Endorsements should be kept simple and be relatively short. They should include how you know the person, how long, some mention of confidence in the ability to repay, and, if a bid supports the listing, a 'money where your mouth is' statement.

Endorse with money

While there is absolutely nothing wrong with someone joining Prosper just to create an endorsement, an endorsement from a known lender with a bid to support it is more valuable, much more valuable.

If you want to take an endorsement with a bid to the next level, make the bid at a 1% interest rate so you are in no matter what, and make sure to mention that in the endorsement so folks know you are committed to this person's loan.

How much is a penny worth? $205.65 (no, copper hasn't gone through the roof, yet!)

Consider a clean A listing like this one. Not a lot of early enthusiasm for this loan by lenders, part of the problem was the (old) NJ rate cap of 13.56% but if we fast forward to the present then that is no longer a problem.

But assuming that the borrower would list at the old rate cap, a change in the amount requested by a penny would make a big difference in the outcome. At $15,000.00 the results would probably be the same, but at $14,999.99 the balanced portfolio plan slice #3 would bid 12.70%. This would have two effects, one it would probably reach 100% funding quickly and two it would then probably be bid down below 12.70% by sniping at the end.

But assuming the interest rate doesn't get bid below 12.70% the difference is $205.65 over the life of the loan.
$15,000.00 @ 13.49% is a monthly payment of $508.96
$14,999.99 @ 12.70% is a monthly payment of $503.24
The difference over the life of the loan is $206.65 in interest. ($18,322.44 - $18,116.79)

If you were a borrower wouldn't you want a hint at the time you create your loan listing that by dropping the amount by a penny you would probably save money ?

Why are bidding guidance and portfolio plan segments discrete ? Maybe there should be some overlap so that a small change in amount requested is not a step function. I guess I'll have to play around with the performance tab some to see what it would look like.