I have recently written posts detailing my lending and borrowing activity through my Prosper.com account. If you are interested, please check out the following posts -

• Creating a new Income Stream using Prosper
• Tips on How to Borrow Money using Prosper
• Tracking the status of my Prosper loan – May (2008)

Today I would like to discuss a loan that has gone bad. In my post Creating a new Income Stream using Prosper, I note that one of my current loans at Prosper.com was 1 Month Late. As of today, the loan is now 2 Months Late. The details of this bad loan are shown below.

At the time of bidding on this loan, I did not have my criteria set for placing my bids (see my post on Creating a new Income Stream using Prosper to view my criteria). The listing seemed to be legitimate to me as the individual was looking to pay off credit card debt that was incurred from college. I received my first net payment of $1.69 on February 29, 2008 which brought the principal balance down to $48.88. When the next loan payment came up in March, there was no activity. Then in April, Prosper was showing the funds were in transit and the payment would be applied. However, a few days later, the funds in transit were no longer visible on the loan and the principal balance remained at $48.88. Over the next couple of weeks, this happened several more times (at least 3 more that I can remember). Each time it appeared funds were in transit, they would disappear a few days later. Once the loan became 1 Month Late, it was then sent to collections. After a few days, it appeared that the collection agency collected the funds and the payment was in transit. Once again, a few days later the funds in transit disappeared and the balance remained the same. This happened one additional time through the collection agency. It has been about 2 weeks now since the latest attempt by the collection agency to collect the funds. There has been absolutely no activity on the loan since then and I am starting to assume the worst.

While I understand that the worst case scenario is that I lose my remaining balance of $48.88, the activity of this loan is extremely frustrating. When opening up my account, I assumed that I would have loans that would go bad and accepted the risk. However, I did not expect a loan like this (at the time of bidding) would go bad. The rate (14.75%) was not unreasonable and I thought I was helping someone get out of debt. The past few months have helped me put in perspective why you should pay your bills on time. While I am very rarely late on the payment of a bill, I now have a better appreciation for making my payments on time or even in advance. I have really never been so concerned with ~$50 in my life as I am now.

I still plan on moving forward with my Prosper lending activity. I feel comfortable at this time with my strategy and criteria for bidding on loans. To date, I have brought in $50.69 in interest, so assuming the worst and I lose the remaining $48.88 on this loan, I will still be ahead.

Do you have a story about loans on Prosper going bad? I would like to hear about experiences that other Prosper lenders have had about delinquite or defaulting loans.

Related posts:

1. Tracking a bad Prosper loan – Update #1
2. The upside of a late loan
3. Tips on How to Borrow Money using Prosper

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