New data on lending at Prosper reveals how peer-to-peer lending is changing. The volume and amount of lending would appear to be on the rise. Some things are still the same: most often, Prosper's borrowers are using the loans to consolidate outstanding debts, to get a small business loan, or to improve their home. Prosper facilitated just over $201 million in loans in the last 12 months, but more than $21 million during July 2010. If you assume that there is little difference in broader demand for credit in July than at other times of the year, then those numbers would suggest Prosper is drawing more consumers. Mix of customers is perhaps the most interesting thing about the new data. It seems
that Prosper is a source of credit for those with few options. Prosper is facilitating loans to people with thin files and to those with bad credit. Both of these groups paid more than 30 percent interest, on average, for their loans. Lenders appear to approach those borrowers with caution. Prosper doesn't tell you how those loans are actually performing. They give data on "expected annual loss rate" and on "expected yield."
Lending Club's data provides more clarity. Their site even lets visitors download performance data. The inference that couldn't be confirmed with Prosper's data is visible here. The best returns are not on the highest grade of consumer (as defined by credit score) or with the lowest-score borrowers. Instead, it is theC, D and E credit-grade borrower that produces the best return. Lending Club uses a 7-tier system, while Prosper uses a 5 tier plus a thin file system.
The highest after-default returns were for loans for weddings, for debt consolidation, and for credit card refinance. Auto loans were far and away the least rewarding purpose.
We know that people are cutting back on their debt. We also know that many people are finding it hard to get loans for small businesses. Credit card companies have begun to migrate to "professional" cards, of course, but that is as much a reflection of gaps in consumer protections as it is a reflection of easing credit.
It is hard to tell, given Prosper's more opaque reporting, but it would appear that investors are faring about the same at both sites. Lending Club's data says that their return is 2 basis points greater than Prosper's "expected annual return."