I regularly write about the 2 methods of tracking my Prosper performance that I use: Quicken and IRR.  It occurs to me that I haven’t said why I need to use these methods; which is to say, why is the Prosper tracking page inadequate.

To start with the easy, Prosper lacks integration with Quicken.  This lack of integration forces me to manually enter transactions into Quicken.  I have simplified my Prosper account in Quicken by rolling all loans together.  Also, Prosper reports accrued interest (see example later) in the account balance.  This creates an inflated account value from a pure Quicken tracking model..

To better understand why I use an IRR calculation let’s take a look at what Prosper claims is my loan performance…

Loans starting during this period					Net income (accrued)		Net defaults		Net gain/loss
No. of loans	Principal loaned	Avg. interest rate	Payments received	Loan value	APY	Amount	APY	Amount	APY	Amount
149	$9,547.15	18.35%	$2,279.35	$7,812.36	18.10%	$656.42	1.46%	$107.24	16.64%	$549.19

As previously stated, net income includes accrued interest.  I think from Quicken and personal accounting perspective accrued interest has no place.  After all, I don’t get to write off loss of accrued interest when a loan defaults.

Use of accrued interest on the performance page is speculative.  It is the best possible assumption from a performance perspective. To be slightly facetious, all accrued interest will be paid and only the currently defaulted loans will default… leading to a net gain/loss that is completely unrealistic.  It is only because accrued interest in included on the performance page that this hyperbole is valid. If it were only the net income actually received then it would be what has actually happened, but as is it is speculating as to future performance.

This is were my IRR calculation comes into play.  It is my speculative look into the future trying to maintain an even (maybe even slightly negative) perspective.  My IRR calculation takes actual cashflows and then uses the account balance (which includes accrued interest) as an outflow (as if you could liquidate your Prosper account on the spot) and the sum of all loans 1 month late or more as an inflow (as if all loans one month late or more are worthless).  I then track this number through time to watch my Prosper performance.

I use Quicken to track exactly what has happened.  I use the IRR calculation to speculate as to what will happen.  I ignore the current RateLadder performance according to Prosper as it is a mixed picture.

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