Through with Lending

Neither a borrower nor a lender be. – William Shakespeare in Hamlet

In previous posts like this one, I told you about my experiences with Prosper, a website that allows individuals to loan money to each other at an agreed-upon interest rate for a three-year term. Follow the link if you want all the details. It seemed like an innovative concept at the time, both profitable and noble. People applied to borrow money with an eBay-style listing, explaining their situation and why they wanted a loan – small business investment, medical bills, home improvement, rebuilding their shoddy credit, etc. I liked the idea of helping people while also getting a good return on my investment.

However, as you might have predicted, it didn’t quite work out the way I’d planned.

Three years after initiating my final loan on Prosper, all 24 of my notes are wrapped up, and I am closing my account. My borrowers were a mix of low-, medium-, and high-risk individuals according to Prosper’s credit rating system. Of the 24 borrowers, 13 of them defaulted. Let that sink in for a minute. Over half of the people who borrowed money from me did not pay me back in full, either by declaring bankruptcy or simply failing to pay. A collection agency pursued some of them with no success. I lost a total of $123.49.

Who should receive the blame here? The economy? Remember, I initiated these loans in 2007 and 2008, shortly before the economy collapsed. The deadbeats themselves for not doing what it took to fulfill their financial obligations? Me for being naive or greedy enough to loan out the money?

I’ll go with all of the above.

Learning experiences can be painful but are usually worthwhile, and that’s certainly the case here. Learn from my failure: unsecured loans to individuals over the Internet are generally a bad idea.