(no subject)
Jan. 29th, 2007 09:12 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
which_chickI got an email today from ![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
fooliv about a blog entry that discussed the "delights" of prosper.com, sort of an ebay that makes the market between lenders and borrowers. I got an email about them a while back, inviting me as the sort of person who might be interested, blah blah blah.
You can read more about the downside of prosper.com here (this being the blog entry thatfooliv sent) but I wasn't a fan of the site before I read the absolutely delightful shredding offered by our man Jason.
I don't like prosper.com for the following reasons.
1. Aggregation of risk is ALSO aggregation of responsibility. The borrower amounts are divvied up into wee parts so that any one borrower is not in hock a huge amount to any one lender. Not good, in my book. Borrowers can say, "Well, hell, it's aggregated. It doesn't matter if I don't pay the prosper.com loan off. Those people can afford to lose fifty bucks each." My borrowers, they owe all the money to me and I have a serious amount of interest (hur, hur) in whether or not I get it back. Their creditor has a name and a face and their phone numbers, their home addresses, their myspace pages, the names of their wives... I am all about the personal touch with lending. It adds to the accountability factor.
2. I don't think lending money at rates approaching 30% is a very good way to make money. Honestly, that's a crippling rate of interest and only severely uncreditworthy people would be borrowing at that rate in the first place. A moneylender can best profit by making loans that benefit BOTH the moneylender AND the borrower. You do not want to bankrupt your borrower. Bankrupt borrowers do not pay back their debts and that is bad. Eighteen percent sounds really super, but if you're not getting paid back, you're getting fucking eighteen percent of NOTHING, which is a lot less than you probably think is is. A moneylender should want his or her borrowers to live and thrive and pay their debts back and perhaps return again in a year or so to borrow more money. (It may help to think of earning interest as more like raising wool than raising mutton. Baaa!)
3. People who are loaning money through prosper.com are content to let prosper.com do the background checks and the financial research. Well, la-di-dah. And what kind of research do I do? Not a whole lot, honestly. "How much ya want? What's it for? What kind of terms are you looking at? You gonna pay me back? Why aren't you going to a bank for this money?" (I can ask whatever questions I want to ask. I am not a bank and I am not bound by Fair Lending Standards. It's enormously freeing, really.) However, I do what I deem to be due diligence and I damn skippy don't trust that someone else has done it for me. The people who are dealing with prosper.com, they are willing to eat shit sandwiches if they don't have to get up and fix 'em themselves. Not a good place to be. If you can't be more involved with what your money is doing, you deserve to lose it.
4. Prosper.com funds loans by some sort of bidding thing. People are stupid about money. I don't want to "bid" for loans that I may or not make. This is not gambling, at least not the way I see it. I don't think it'd be fun to enjoy uncertainty about the process. I'm actually all about the certainty with my money. Also, people appear to be quite stupidly bidding on things like the borrower's story. The story doesn't do it for me. I ask, because people expect me to ask. "Aren't you going to ask why I want the money?" (This is actually less interesting to me than you might think, provided it's for a reasonably fiscally responsible, not-drug-related reason. As these are unsecured loans, I'm far more interested in whether or not you're going to pay me back than I am in what responsible thing you do with the money.) I don't care if you go to church or if you have a disabled child. I don't give a damn if you volunteer at the local senior center or work at a soup kitchen on weekends. I'm primarily interested in whether or not I can get my money (plus interest) back out of you with a minimum of time, effort, and energy. Everything else is filler. I'll listen and nod and smile, but mostly I'm trying to figure out if I want to write you a check or not.
While I bash prosper.com, I loan unsecured money for fun and profit. I do this in a more-than-casual sort of way. At the current time, I have something between thirty and forty thousand dollars (the actual figure is at work) outstanding in assorted loans to various people for, y'know, stuff. All of it's loaned out at 7%, unsecured, and I make about $2500 a year in interest, give or take. It's a fun little sideline and it gives me something to do in my idle hours.
My borrowers know that they're getting a pretty good deal. The money they borrow from me doesn't show up on credit reports. It doesn't affect credit scores. It's invisible to The Big Three... and it's cheap, cheap, cheap. There are a lot of benefits to borrowing from me -- I'm not in this to screw people over. Mind you, I'm not in this to help people, either. I take a fair profit and I will cop to why I'm in the game. I don't EVER loan money based on how badly a prospective borrower needs it. I always loan money based on whether or not I think the prospective borrower will pay me back in a timely and prompt fashion.
Guidelines for making loans:
1. Loan to people you know or people that people you know have vouched for with their lives, fortunes, and sacred honor. (Or by co-signing. That works, too.)
2. Loan at a reasonable interest rate. In the *current* market, charging more than 10% is unreasonable.
2A. Don't get greedy. You're shearing the sheep, not slaughtering it.
2B. Never loan money interest-free. People take loans more seriously when there is interest involved. I charge interest for everyone, including family.
3. Put everything in writing. (A lawyer can draft you a reusable fill-in-the-blanks note for unsecured loans.) Provide an amortization schedule for the borrower. Keep good records of payments including date received and check number. A spreadsheet might be useful.
4. Keep after your bad payers, use certified mail to build a paper trail, and involve a lawyer before any payer gets more than sixty days back.
5. Declare your income. Use Schedule B if you make more than $1500 in interest in any given year (and there is no reason you should not). Don't worry about how you set forth the payers of interest -- I generally use the abbreviations I use in my recordkeeping and the IRS has thus far asked no questions whatsoever about what stuff like "LC" and "TC" and "MS" and "TB" stand for as payers of interest. If anyone ever does ask, you can show them the data accumulated in #3, above. Mostly, the IRS will be happy you're declaring the income and paying taxes.
6. Remember that the most palatable way to turn someone down for a loan is this: "I'm sorry, I would love to loan you $XXX but I just don't have the money right now." (It is also nearly impossible for the turned-down borrower to PROVE that you are lying about this. I have never had anyone argue with me over "I just don't have the money right now." They all believe. Of course, sometimes I say it when it's true, so... you never know, do you?)
7. Never, ever loan money that you can't afford to lose. Ever. If you need that money in a month or two to make the house payment or buy fuel oil or pay for the kid's college tuition or cover grandma's losses at the craps table or whatever, you cannot loan the money. DO NOT loan money you cannot afford to lose.
8. Lender discretion is important. Don't be all sharing the business of your borrowers. It is not nice to say, "Well, Blah McBlah borrowed eight grand from me to whackity schmackity diddley-foo." Blah McBlah is paying you interest and he or she deserves a little fucking discretion. Think of it as just another service that you can offer your borrowers.
fooliv about a blog entry that discussed the "delights" of prosper.com, sort of an ebay that makes the market between lenders and borrowers. I got an email about them a while back, inviting me as the sort of person who might be interested, blah blah blah.You can read more about the downside of prosper.com here (this being the blog entry that
fooliv sent) but I wasn't a fan of the site before I read the absolutely delightful shredding offered by our man Jason.I don't like prosper.com for the following reasons.
1. Aggregation of risk is ALSO aggregation of responsibility. The borrower amounts are divvied up into wee parts so that any one borrower is not in hock a huge amount to any one lender. Not good, in my book. Borrowers can say, "Well, hell, it's aggregated. It doesn't matter if I don't pay the prosper.com loan off. Those people can afford to lose fifty bucks each." My borrowers, they owe all the money to me and I have a serious amount of interest (hur, hur) in whether or not I get it back. Their creditor has a name and a face and their phone numbers, their home addresses, their myspace pages, the names of their wives... I am all about the personal touch with lending. It adds to the accountability factor.
2. I don't think lending money at rates approaching 30% is a very good way to make money. Honestly, that's a crippling rate of interest and only severely uncreditworthy people would be borrowing at that rate in the first place. A moneylender can best profit by making loans that benefit BOTH the moneylender AND the borrower. You do not want to bankrupt your borrower. Bankrupt borrowers do not pay back their debts and that is bad. Eighteen percent sounds really super, but if you're not getting paid back, you're getting fucking eighteen percent of NOTHING, which is a lot less than you probably think is is. A moneylender should want his or her borrowers to live and thrive and pay their debts back and perhaps return again in a year or so to borrow more money. (It may help to think of earning interest as more like raising wool than raising mutton. Baaa!)
3. People who are loaning money through prosper.com are content to let prosper.com do the background checks and the financial research. Well, la-di-dah. And what kind of research do I do? Not a whole lot, honestly. "How much ya want? What's it for? What kind of terms are you looking at? You gonna pay me back? Why aren't you going to a bank for this money?" (I can ask whatever questions I want to ask. I am not a bank and I am not bound by Fair Lending Standards. It's enormously freeing, really.) However, I do what I deem to be due diligence and I damn skippy don't trust that someone else has done it for me. The people who are dealing with prosper.com, they are willing to eat shit sandwiches if they don't have to get up and fix 'em themselves. Not a good place to be. If you can't be more involved with what your money is doing, you deserve to lose it.
4. Prosper.com funds loans by some sort of bidding thing. People are stupid about money. I don't want to "bid" for loans that I may or not make. This is not gambling, at least not the way I see it. I don't think it'd be fun to enjoy uncertainty about the process. I'm actually all about the certainty with my money. Also, people appear to be quite stupidly bidding on things like the borrower's story. The story doesn't do it for me. I ask, because people expect me to ask. "Aren't you going to ask why I want the money?" (This is actually less interesting to me than you might think, provided it's for a reasonably fiscally responsible, not-drug-related reason. As these are unsecured loans, I'm far more interested in whether or not you're going to pay me back than I am in what responsible thing you do with the money.) I don't care if you go to church or if you have a disabled child. I don't give a damn if you volunteer at the local senior center or work at a soup kitchen on weekends. I'm primarily interested in whether or not I can get my money (plus interest) back out of you with a minimum of time, effort, and energy. Everything else is filler. I'll listen and nod and smile, but mostly I'm trying to figure out if I want to write you a check or not.
While I bash prosper.com, I loan unsecured money for fun and profit. I do this in a more-than-casual sort of way. At the current time, I have something between thirty and forty thousand dollars (the actual figure is at work) outstanding in assorted loans to various people for, y'know, stuff. All of it's loaned out at 7%, unsecured, and I make about $2500 a year in interest, give or take. It's a fun little sideline and it gives me something to do in my idle hours.
My borrowers know that they're getting a pretty good deal. The money they borrow from me doesn't show up on credit reports. It doesn't affect credit scores. It's invisible to The Big Three... and it's cheap, cheap, cheap. There are a lot of benefits to borrowing from me -- I'm not in this to screw people over. Mind you, I'm not in this to help people, either. I take a fair profit and I will cop to why I'm in the game. I don't EVER loan money based on how badly a prospective borrower needs it. I always loan money based on whether or not I think the prospective borrower will pay me back in a timely and prompt fashion.
Guidelines for making loans:
1. Loan to people you know or people that people you know have vouched for with their lives, fortunes, and sacred honor. (Or by co-signing. That works, too.)
2. Loan at a reasonable interest rate. In the *current* market, charging more than 10% is unreasonable.
2A. Don't get greedy. You're shearing the sheep, not slaughtering it.
2B. Never loan money interest-free. People take loans more seriously when there is interest involved. I charge interest for everyone, including family.
3. Put everything in writing. (A lawyer can draft you a reusable fill-in-the-blanks note for unsecured loans.) Provide an amortization schedule for the borrower. Keep good records of payments including date received and check number. A spreadsheet might be useful.
4. Keep after your bad payers, use certified mail to build a paper trail, and involve a lawyer before any payer gets more than sixty days back.
5. Declare your income. Use Schedule B if you make more than $1500 in interest in any given year (and there is no reason you should not). Don't worry about how you set forth the payers of interest -- I generally use the abbreviations I use in my recordkeeping and the IRS has thus far asked no questions whatsoever about what stuff like "LC" and "TC" and "MS" and "TB" stand for as payers of interest. If anyone ever does ask, you can show them the data accumulated in #3, above. Mostly, the IRS will be happy you're declaring the income and paying taxes.
6. Remember that the most palatable way to turn someone down for a loan is this: "I'm sorry, I would love to loan you $XXX but I just don't have the money right now." (It is also nearly impossible for the turned-down borrower to PROVE that you are lying about this. I have never had anyone argue with me over "I just don't have the money right now." They all believe. Of course, sometimes I say it when it's true, so... you never know, do you?)
7. Never, ever loan money that you can't afford to lose. Ever. If you need that money in a month or two to make the house payment or buy fuel oil or pay for the kid's college tuition or cover grandma's losses at the craps table or whatever, you cannot loan the money. DO NOT loan money you cannot afford to lose.
8. Lender discretion is important. Don't be all sharing the business of your borrowers. It is not nice to say, "Well, Blah McBlah borrowed eight grand from me to whackity schmackity diddley-foo." Blah McBlah is paying you interest and he or she deserves a little fucking discretion. Think of it as just another service that you can offer your borrowers.
