Lending Efficiency

Since I'm still having procrastination problems with writing about default models, I started thinking about what my time spent working on Prosper loans is worth. That got me looking at the revenue generated from Prosper loans and how my time was invested in getting that revenue. Lets start by looking at the interest income over 3 years for a bid of $50 (the Prosper minimum).

Interest Rate	Interest Income
10%	$8.08
14%	$11.52
18%	$15.07
22%	$18.74
26%	$22.52

Doesn't seem like much does it. After all, $50 at 10% per year should be at least $15, right? That's the magic of the amortizing loan schedule. The interest earned decreases every month as the borrower repays a portion of the $50 borrowed.

As to time spent, my off-the-cuff guess is that I spend around 5 minutes per bidded listing (most of that time is passing on the rest of the listings), and only a third of those listings will successfully become loans (between not being fully funded, outbid, and having the loan canceled). This is sufficient to determine my hourly wage for being a bidding monkey.

Interest Rate	Interest Income	Hourly Income
10%	$8.08	$32.32 / hr
14%	$11.52	$46.08 / hr
18%	$15.07	$60.28 / hr
22%	$18.74	$74.96 / hr
26%	$22.52	$90.08 / hr

This is, of course, excluding early repayments, defaults, and time spent researching loan strategies. If only life were like the 26% loans. The right strategy to improve your efficiency is to invest more per bid (say $100) instead of chasing those D, E, and HR listing, but be careful to stay diversified with a very low percentage (2-3%) of your Prosper money in any given loan.