So let's jump right in.
How Does Prosper.com rate its loans?
Prosper.com is one of the leading peer to peer lending sites on the web today. Prosper was the first peer to peer lending site created on the web, at least according to their own website. It's a great site and platform for adding peer to peer lending to your arsenal of moneymaking tools. It has its own rating system that includes AA (the highest) and then A-E in descending order of rank. They have a last lowest rank of HR.
The reason these sites are called Peer to Peer lending sites is that there are 2 sides to this lending platform: The Borrowing side for those seeking a loan and the Investing side for those looking to help fund the loans and earn some additional interest for themselves. Our focus is on the Investing side so seeing how these platforms rate their loans is important to us.
So what makes an A rated loan different from a C rated loan? The short answer is that no one knows as its a proprietary system created by Prosper.com. As you can see below in the chart (sorry its kinda blurry I'm working on improving the resolution), the Seasoned Returns by type are listed on the next to last column to the right. The A loans, accounting for losses yielded 6.25% and the C loans, also accounting for losses, yielded 10.66%. Does that mean C loans are better? Definitely not as they carry higher risks and higher losses. The green area I have circled here shows the returns of C, D and E loans, whose importance I will address in a later post.
Here is what we do know, that there are numerous factors that affect its ratings including: (All of these factors will be dealt with in much greater detail going forward here on this blog)
Debt to Income Ratio
Number of Credit Lines Open
Not coincidentally, these are all listed on the Loan Listings on the Prosper.com site. Their rating system is pretty good. Is it perfect? No, definitely not. However, THAT is our opportunity. Our opportunity is to take advantage of higher rates of return for lesser risk, or to skew the risk/return ratio in our favor.
In fact, that is this website's reason for being.