Previously I posed several questions on prosper groups. Here is the second installment of answers. Why would a lender join a group? I think that the answer must be you are getting a higher ROI and/or that you are supporting some ethical, political, collegiate, or ??? value. Given that I can’t measure ones values that leaves maximizing ROI.
How can I measure ROI? The data is too young to measure default rates and any estimate is only a guess at this point. I propose measuring loans currently in default. No group currently default: (339/4,467 ~ 7.6%). With a group currently default (142/1,983 ~ 7.2%). That shows a slight improvement but not a statistical lock.
To be fair prosper alleges that a group’s reputation matters so I could only count loans with 4 or 5 star groups. This is a bit of a self fulfilling prophecy since groups with better ratings have less defaults by definition.
Only time will tell if groups make a difference from a lender’s perspective. How many loans must a group fund before it’s reputation is to be believed?
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4 comments ↓
I ignore everything about groups. I just don’t see the value in them as a lender. I don’t even put much into lending to people who are not in a group. Perhaps I’m just weird :-).
I don’t have any group filters on my standing orders. So I am in the same boat… But I thought I should look into what the data is saying just in case I am missing something.
[...] Groups on Prosper are in theory meant to help borrowers through education and lenders through lower default rates. I have explored these aspects of groups before: Why Would a Borrower Join a Group? and Why Would a Lender Join a Group?. In this post we will examine the group Two Millionaires. [...]
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