Observations on Prosper Interest Rates

(part 18 of my Prosper Lending Presentation)

If you have followed along to at least this point, then it should be obvious to you that you need to set your own bidding rates to accommodate the risk you’re taking on with each Prosper loan. duh! Don’t chase a rate down too far just because you were outbid and have to be on the loan. There is always a point to let a loan go free without your bid. More listings will be coming your way.

And while we’re on interest rates, here are just a couple of observations I’ve had about them in the Prosper Marketplace:

Market Popularity

The final interest rate gives the Prosper lender an idea of how others have rated the listing. A high rate usually means that there isn’t too much confidence in the borrower, while a low rate usually means a high level of confidence. So this in a way is another data point.

For example, Ohana loans and longtime community member loans usually go for very low rates because of their popularity.

But if you don’t know why a Prosper loan is so low, then you need to find out before you bid on it. Sometimes loans just go low for other reasons.


Auction Mechanics

Don’t be fooled by big loans, and don’t be fooled by small loans.

Bigger loans usually command a higher interest rate, not only due to the new Bidding Guidance that we’re given and the higher risk that large loans usually carry, but because it’s harder to drive the rate down on them. Because of the loan size, more interested bidders are required to successfully drive the rate down on these large loans.

Conversely, on a small loan, only a few aggressive bidders are required to drive the rate down to unimaginable depths…