Thursday, July 20, 2006

The Dumbest Thing About Prosper Peer-2-Peer Lending (Read This If You Want to Know A Lending Hack/Trick)

Ok, I'm seething mad. I just got off the phone w/ a very professional customer service rep at Prosper.com. However, it doesn't make up for the fact that Prosper is soooo stupid for applying the Reverse Dutch Auction programming code to automatic funding loans.

Don't understand what I just said? Ok, normally, a non-automatic funding loan will get the interest rate bid down by competing lenders. This is good for borrowers and is an excellent application of Reverse Dutch Auction principles.

Use of this is completely and utterly stupid for automatic funding loans. These loans have the lighting bolt symbol and end regardless of time open when the borrower has received 100% funding from the pool of bidders.

Here's the rub, I was outbid on loan 25608

I made my bid at 2:34pm as "WellVersed" when the loan was less than 50% fulfilled (I think it was around 20 or 30% fullfilled). Then, 6 other bidders successfully piled in after me.

How can you get outbid on an automatic funding loan? In this case, first-come-first serve does not necessarily apply to lenders. So long as a loan remains unfunded by just one cent, anybody can come in and bid as large an amount as they want and kick out prior bidders so long as their "minimum interest rate" is lower than enough other bidders.

From now on, I'm entering 0.00 percent for the lowest interest rate i'm willing to accept on automatic funding loans. I RECOMMEND YOU DO THE SAME if you don't want to get kicked out of an automatic funding loan bid.

3 comments:

Dan said...

Don't bid 0%! You'll be sorry if literally EVERYBODY takes your advice!

Just bid what you're supposed to bid on any loan: the MINIMUM rate you'd be comfortable with for that loan. Then you're always happy. It won't kick you out unless and until someone else has stated they would be comfortable at a lower % than you.

Yeah, there will be times when you get kicked out without the rate actually moving down - it's happened to me too. But those people who kicked me out deserved the loan, as they took on more risk by offering a lower rate, even it the ending rate stayed at my minimum. It irks you the first time you see it, but then you realize it's not really anything to get mad about.

Finance Junkie said...

Dan,

Please understand, i'm saying bid 0% as your lowest rate on "automatic funding" loans.

These are the loans that do not vary their interest rate, but get filled once 100% of the requested amount is funded.

Dan said...

I understand - I've seen this topic discussed on the Prosper message boards before, and iiuc the concensus seemed to be that if all bidders bid 0% the bid would actually go down to 0%.

http://prosper.spreebb.com/archive/index.php/t476.html

Of course, it's a long thread and I don't think any Prosper staff chimed in to answer definitively. But from what I've seen occur, I believe it to be true that instant funding loans can bid down to the highest winning bid rate.