Bad Loans

The Good Book says a fool and his money are soon parted. I don’t consider myself a fool, but I did manage to lose some money. You might remember a blog post from Dec 2006 about a new website called Prosper, which allows regular people to loan and borrow money to other regular people. Using credit checks and other means, the site gives a prospective borrower a credit rating (A, B, C, etc.). The higher a borrower’s credit rating, the higher the interest rate the lender would demand. All loans have a 3-year term with no collateral (which should have been a big red flag), and the site processes the loan and payments. I loaned small amounts of money to 24 different people over several months. I liked the novelty, the chance to earn high returns, and the opportunity, by loaning money to people who might not be able to get a loan otherwise, to help people who have either made bad financial decisions or simply fallen on hard times.

I have learned why some of these borrowers have trouble getting loans: they don’t pay them back.

To be fair, 14 of my 24 loans are current on payments, and I appreciate their faithfulness. However, I also have 2 bankruptcies, 1 default, 3 lates over 4 months, a few in collections, and various other problems. Some had low credit scores, but some even had high ones. I would call the borrowers in question deadbeats, which is technically correct, but I don’t want to make light of their financial troubles. I doubt any of them wanted to miss their payments. Things happen, sometimes due to our own mistakes, other times due to circumstances outside our control. I don’t know all the details on my borrowers’ situations. All I know is that many of them aren’t paying back their loans on time, some not at all, and as my principle and interest come in, I plan to withdraw those funds from Prosper.

It’s been an interesting ride on the lender side of the street, listening to people ask for loans and deciding whether or not they are a good risk, or whether I should loan them money anyway even if they won’t pay me back. It raises questions about our Biblical duties both to help the needy and to use our resources wisely and plan for the future. I must admit I’m quite disappointed that Prosper didn’t live up to my high expectations. As the son of my parents, I’ve always had both a large aversion to debt and a huge internal burden to pay any bills and debts on time if not early. I expected my borrowers to have the same attitude. I also naively thought that the nobility of Prosper’s concept and gratitude from the borrowers would ensure almost universal repayment. In this broken world, even a noble cause can’t always overcome the harsh realities of life. Perhaps Shakespeare had the right idea in Hamlet when he said, “Neither a borrower nor a lender be.”