October 14, 2011

An Update on Peer-to-Peer Lending Performance

By Prosper

We recently announced that Prosper’s seasoned portfolio returns have increased to 10.69%.* Given the turmoil in the financial markets we are extremely proud of these returns. Not only have they helped our investors during trying times, they are a clear validation of the robustness of our credit model, the experienced team that runs it, and the opportunity that we think lies ahead.

As the world has begun to notice the great returns in peer-to-peer lending, we are often asked two questions by lenders:

  1. How do our returns compare to those of Lending Club, the other major player in the space?
  2. What are “seasoned returns” and why do we show them?

This blog addresses both of those questions.

Comparison of Prosper & Lending Club Returns 

One of the great things about peer-to-peer lending is that both major players make their loan performance information public. That enables outside parties to study the performance of each company’s loans on a comparable basis. We have developed a methodology that estimates loss rates and lender returns based on the publicly available information from both companies on a consistent basis. We published this methodology and detailed analysis earlier this year and invited comments or corrections. We continue to believe the methodology is a valid measure of relative performance.

We updated the comparative analysis based on performance through early October 2011, and the results are striking:

Prosper is delivering twice the lender returns at a lower average loss rate than Lending Club.

Originations (Jul 09 – Nov 10)


Lending Club

Interest Rate, net of servicing



Loss Rate



Investor Return



Return to Risk Ratio




A second picture emerges when the loss performance by rating is studied.  Prosper’s loss rates by rating are consistent with or lower than the expectations that were set with lenders when they invested in the notes.  At Lending Club, actual loss rates have significantly exceeded expectations during the same period.

** Because Lending Club’s data does not include Default Date, our methodology can only provide an estimate of the Actual Loss Rate experienced on the portfolio. For more detail, please see our updated Excel 2007 workbook Loan Performance Comparison 2011, which contains Prosper and Lending Club data as of October 12, as well as related calculations. For full methodological notes, please refer to the original Excel 2007 workbook that we released in January.

Recent Trends

The dataset for this analysis now includes performance data for more than 20,000 seasoned loans. As recently-booked loans from both companies begin to age, we will be monitoring the impact of two recent trends:

1.       Average Loan Size Steady at Prosper. Rising at Lending Club:

2.       Five-year Notes now make up a large proportion of peer-to-peer originations:

These two trends may have a significant impact on risk performance over time.   In some circumstances larger loans and longer terms can cause an increase in risk compared to smaller, shorter-term loans to the same population.  We are continuing to monitor both trends, and we look forward to providing you with an update in the future.

Seasoned Returns

The other question frequently asked by lenders is “What are seasoned returns, and why do you show them?” The fundamental reason we focus on seasoned return figures is that they more accurately reflect the true underlying return of the loan.  An unseasoned return — i.e. one that includes the performance of newly-booked loans — will appear unrealistically high because the young loans have been paying interest but haven’t yet had time to register losses.

For this reason we only include loans that are at least 10 months old in our ‘seasoned return’ calculations. That cut-off ensures the seasoned return figure is not overstated and lenders with young portfolios are not led to expect higher returns than they will ultimately realize.


* Net Annualized Returns represent the actual returns on Borrower Payment Dependent Notes (“Notes”) issued and sold by Prosper since July 15, 2009. To be included in the calculation of Net Annualized Returns, Notes must be associated with a borrower loan originated more than 10 months ago; this calculation uses loans originated through November 30, 2010. To calculate Net Annualized Returns, all payments received on borrower loans corresponding to eligible Notes, net of principal repayment, credit losses and servicing costs for such loans, are aggregated then divided by the average daily amount of aggregate outstanding principal for such loans. To annualize this cumulative return, the cumulative number is divided by the dollar-weighted average age of the loans in days and then multiplied by 365. Net Annualized Returns are not necessarily indicative of the future performance of any Notes. All calculations made as of September 30, 2011.