Higher Risk Lending

1. Understand what higher risk
credit grades mean

2. Higher risk
may have higher defaults

Higher risk may have higher defaults

Credit grades help lenders make decisions about whether to bid on borrowers' listings, because a credit grade is a measure of the likelihood that a borrower will repay his or her loan.

Prosper also provides the marketplace performance page, which has a table that will display estimated return by credit grade. Here's an example:

Estimated Return

Help

Performance metric	AA	A	B	C	D	E	HR
Average lender rate	10.35%	12.23%	14.44%	16.97%	19.71%	22.87%	21.97%
Net defaults	-0.55%	-2.37%	-3.06%	-6.79%	-8.51%	-10.56%	-16.21%
Rate adjustment (interest and fees)	0.00%	-0.10%	-0.17%	-0.51%	-0.70%	-0.79%	-1.22%
Prosper servicing fee	-0.50%	-0.49%	-0.79%	-0.78%	-0.76%	-0.70%	-0.74%
Estimated annual return	9.29%	9.26%	10.41%	8.90%	9.74%	10.82%	3.80%

Estimated annual return is based on loans to borrowers with 0 current delinquencies and 0-2 inquiries in the last 6m on loans originating between Jun-01-2006 and Aug-31-2007 as of Sep-31-2007, and is intended to help you understand the risks and return associated with the selected loans. Actual performance may differ from expected performance.

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