The Borrower’s Ability to Pay You Back

(part 15 of my Prosper Lending Presentation)

One of the most important things one should consider when looking for listings on Prosper is to find borrowers that are requesting reasonable loan amounts within their capacity to pay you back.

Of course, the income claimed is self reported (although some are verified by Prosper), but that’s all we have, so we have to rely on it (with a healthy dose of skepticism).

Also, the borrower’s DTI gives you an idea of what sort of debt load the borrower has relative to how much they’re making. Keep in mind that the DTI figure includes the Prosper loan payment, but does not include a mortgage payment (that would give renters a huge advantage).

Now, how much are they asking? Huge loan amounts scare the hell out of me, and historically haven’t performed well, regardless of the income. Big loan amount = big monthly payment. The borrower would need a large salary to handle a large monthly payment and other existing obligations, and unfortunately most borrowers don’t have big incomes. So, you must consider the amount requested relative to income and DTI.

Fortunately for us lenders, the newly revised Bidding Guidance is in part based on loan amount. If you want to see how much riskier large loans are compared to small loans, spend some time perusing the latest Credit Segments Prosper offers on existing Prosper loans. The results might surprise you - or not.

Notice I haven’t even brought up credit grades yet. Regardless of the credit grade, the borrower MUST HAVE the ability to pay you back…