See "Prosper Private Lending Service: Do You Want To Be a Collection Agency?" for background.
Prosper.com lenders are apt to overestimate their profits:
- Your returns might appear high at first (when borrowers make the first payment because they are still eager and excited about their new money and the novelty of Prosper) but do not be surprised if defaults increase over time as borrowers get bored of paying and the luster of their vacation/wedding/business-that-did-not-take-off is long forgotten.
- You never know your final profit until the last payment is made (or not made) 3 years later.
- You can spend 2 years simply hoping that you get your principal back.
- After that, spend another year seeing if you will get the promised 15% above principal or if the borrower will skip the last year of payments so you net 0% above principal—which would be a real 6-9% net loss after you account for 2-3 years of inflation.
Therefore, perhaps Prosper profits should be tracked by making the loan, recording a -100% return (100% loss), updating to a -97% return after the first payment, and so forth.