Seems to me that there are 2 good reasons for a borrower to join a group: better funding percentage and/or reduced interest rate. I think that there may be other reason, but they fall into the category of what is your favorite pro team or your favorite color. That is to say inconsequential in the loan game. Are there other legitimate reasons? So are borrowers in groups getting lower interest rates and/or funded at a greater percentage? I think that groups provide guidance to borrowers. So they might not get the best interest rates, but I suspect that they are funded at a higher percentage because the guidance makes for better listings.
All loans without groups fund 10.57% percentage (1,960/18,541) of the time. All loans with groups fund 16.27% percentage (4,486/27,577) of the time. (I was able to figure this out using my listingkey that I add to the loan table from the prosper public data.) The weighted average loan interest rate for all loans without groups is 15.27% with a standard deviation of 7.23%. The weighted average loan interest rate for all loans with groups is 16.41% with a standard deviation of 7.11%.
Interesting, BUT both of these questions demand that we compare apples to apples. That is loans of the same credit grade, size, and DTI ratios.
Here are those same numbers, but broken down by like loans. Again I used the listingkey to produce the percentage of listings funded.
| Interest Rates | AA | A | B | C | D | E | HR | NC |
|---|---|---|---|---|---|---|---|---|
| Loan | No Group | |||||||
| Amt < $10,000, DTI <= 20% | 7.4% | 8.7% | 11.22% | 13.14% | 15.17% | 16.92% | 16.94% | 17.32% |
| Amt < $10,000, DTI > 20% | 8.94% | 10.09% | 12.2% | 14.19% | 15.31% | 17.3% | 14.78% | 16.46% |
| Amt > $10,000, DTI <= 20% | 8.17% | 9.58% | 12.1% | 13.75% | 14.46% | 16.14% | 15.8% | 13.88% |
| Amt > $10,000, DTI > 20% | 10.72% | 10.99% | 12.7% | 14.14% | 14.47% | 15.93% | 15.3% | 15.43% |
| Loan | Group | |||||||
| Amt < $10,000, DTI <= 20% | 8.04% | 9.04% | 10.72% | 13.15% | 15.28% | 17.4% | 18.19% | 16.85% |
| Amt < $10,000, DTI > 20% | 9.15% | 10.75% | 12.94% | 15.06% | 16.49% | 18.18% | 18.38% | 12.25% |
| Amt > $10,000, DTI <= 20% | 9.51% | 10.82% | 12.78% | 14.11% | 16.9% | 16.57% | 16.57% | 16.85% |
| Amt > $10,000, DTI > 20% | 11.41% | 12.34% | 14.02% | 15.19% | 15.81% | 16.91% | 15.49% | 16.85% |
| Funding Percentage | AA | A | B | C | D | E | HR | NC |
|---|---|---|---|---|---|---|---|---|
| Loan | No Group | |||||||
| Amt < $10,000, DTI <= 20% | 55.35% | 60.85% | 65.90% | 54.10% | 40.43% | 16.57% | 3.26% | 13.47% |
| Amt < $10,000, DTI > 20% | 35.8% | 50% | 41.35% | 37.2% | 22% | 8.76% | 1.19% | 4.76% |
| Amt > $10,000, DTI <= 20% | 61.06% | 55.84% | 56.25% | 39.86% | 27.56% | 6.96% | 0.17% | 5.26% |
| Amt > $10,000, DTI > 20% | 17.28% | 16.81% | 13.14% | 8.08% | 8.3% | 2.49% | 0% | 0% |
| Loan | Group | |||||||
| Amt < $10,000, DTI <= 20% | 77.65% | 65.47% | 66.80% | 62.53% | 44.93% | 24.58% | 9.03% | 21.24% |
| Amt < $10,000, DTI > 20% | 45.31% | 50.98% | 53.36% | 41.15% | 24.89% | 13.5% | 5.22% | 25% |
| Amt > $10,000, DTI <= 20% | 61.06% | 55.84% | 56.25% | 39.86% | 27.56% | 6.96% | 0.17% | 5.26% |
| Amt > $10,000, DTI > 20% | 34.57% | 37.67% | 25.4% | 18.59% | 10.39% | 4.38% | 0.41% | 0% |
Conclusion. The data is still in infancy and hence quiet noisy, but borrowers are seeing some benefits of groups. It could be that the benefit in funding numbers is due to the groups helping to create a better listing. The better listing has a better chance of funding because it is at a higher interest rate. It could be that certain groups are supported by lender members.
Posted in the car 30 minutes from Lexington, KY via Sprint EVDO card.
Why Would a Lender Want to Join a Group? — Prosper Group Analysis Part 2
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[...] 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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