With my recent loan on Prosper I tried to keep an eye out for interesting stories along the way. In this case I found something I didn’t like as a lender… Prosper explicitly told me not to put up a 25K listing.
As a lender and data junkie I have known for some time that loans asking for the entire $25,000 are riskier than loans asking for $20,000-24,900. That is, listings for $25,000 are more likely to go late and eventually default than loans for slightly less. Intuitively it makes sense that a larger loan should carry a slight risk premium just based on the larger loan amount, but people asking for the maximum a much more likely to be late and default. Asking for the maximum shows desperation and need. Desperate people in need are a higher risk.
I think Prosper should do everything it can to maximize it’s loan volume, but it should not put lipstick on pigs. By coaching borrowers to avoid this red flag of $25,000 they are obfuscating risk…
How did they steer me away from $25,000? See the screen print, specifically the yellow information box.
From a lender’s perspective this makes $24,000 the new $25,000. Lenders adjust accordingly.
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9 comments ↓
I don’t like this at all. Booooo Prosper…
This isn’t about avoiding defaults – this is about guiding borrowers to a loan amount which will actually generate enough bids to get funded. Even prime borrowers like yourself, RateLadder, have trouble generating $25k in bids. So we try to gently guide you lower, even if only marginally lower to $24k. – Andrew from Prosper
Pointless.
From now on a red flag will go up when people try to borrow 23900 or more.
Prosper will respond by advising people to borrow 23000 or less.
Rinse.
Repeat.
Lenders should be aware of the recommendation to borrowers. I think telling borrowers to only ask for what they need or that borrowing a lower amount is more likely to get funded, etc. is all fine.
What I don’t like is the specific don’t ask for $25K and by making $24K to top of the range there are now more listings asking for $24K than $25K.
Is it in fact an alert on a fixed amount (always and only $25,000 to $24,000) or is it dynamic in nature, where it takes into account people’s credit grade and the average loan size that people with that grade can sucessfully get ?
Glad to see Andrew participating. It’s always nice to get things from the source.
I do not know if it takes into account credit grade or anything else into the message… I do know that when I reduced my amount to $24K the message went away.
i typically don’t lend to borrowers asking that sort of money.
I like to focus on people who are slightly late on their payments and need $2,000 to help them.
Three quick comments…
1)
“…this is about guiding borrowers to a loan amount which will actually generate enough bids to get funded.
… So we try to gently guide you lower, even if only marginally lower to $24k.,”
This explanation would make more sense to me if the guidance to go lower didn’t occur at ONLY the maximum loan amount ($25K).
2)
Folks who list for less than the max are far less likely to have immediate plans to borrower more. Folks who list for the max are more likely to want to borrower more – and they may well borrow the difference somwhere else. This additional risk isn’t reduced, imho, if they borrow $24K instead of $25K.
3)
“$24,000 the new $25,000.”
Hmm, now where have I heard that catch-phrase before?
I guess everyone sees risk levels differently, but I’m with Living Off Dividends. There’s no way I’d lend to someone asking for even $20k, let alone $24k. There just aren’t a whole lot of good reasons why a person is in need of that much cash, and can’t get it at a bank.
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