There is a new academic study of Prosper, the peer-to-peer loan platform, by economists Seth Freedman and Ginger Zhe Lin of the University of Maryland. Among the findings:
- The average Prosper returns since inception were estimated at 6.05% with a 5.72% standard deviation and were trending up as credit quality continues to improve (see table 9 and figure 8.3).
- The highest returns were in Near Prime loans (grades B-D) at an average of 8.27%, followed by Prime loans (grades AA & A) at 6.78% and sub-prime loans at 1.73%.
My own experience is that I am getting about 12.5% on AA and A loans. Mentally I discount my return to 10% to allow room for defaults, and attribute the extra 2.5% to luck. I suspect that it is not so difficult to beat the averages because the averages are lowered by clueless newbies bidding on loans that they will see as hopeless mistakes after they get a bit of experience.
Even though I think I could earn 9 or 10% on Prosper, I have not put in additional funds, mainly due to a lack of confidence that Prosper is growing fast enough to be viable.