I'm a lender on Prosper. Right now, I have 3 loans active, and 1 loan still in its bidding process (though that loan has now funded fully). Yesterday, I checked in to find that my account showed all the usual data ... plus an "Undisbursed Payment" amount of ~$49.
I wasn't exactly sure what this was, but I also didn't have much time to look into it right then. Today, I discovered that this happened because one of my three funded loans was paid off early ... well, 97.3 percent paid-off early. The borrower returned $49.35 of my $50 principal, plus $.05 interest. The other $.65 is still loaned at the original terms.
Yes, Prosper's system does allow me to know which loan this was. (A lender's loan table looks like this.) It's really no surprise to me that this loan prepaid. The terms seemed awfully sweet: high-credit-rating borrower, offering 17% interest for a business-startup loan. Refinancing at cheaper terms shouldn't have been tough for her to pull off (assuming her story was valid).
Some bloggers have mentioned the "prepayment risk" of Prosper, and what you have here is exactly what they're writing about. Except that I'm not sure how much "risk" there really is.
Consider that we're not talking extra-long-term loans here. Prosper currently offers only the 3-year variety. Prepayment risk, purely defined, would matter a lot more if we were talking about (1) making 10- or 15- or 30-year loans in a (2) declining-interest-rate environment. We don't have either of those circumstances here. I'm much more worried about repayment risk than prepayment risk, as I suspect most other Prosper lenders are, too.
So that ~$49 is right back in my account. I can put it back to work again, as soon as I'd like — provided that I can find another loan I'm comfortable with. It does bring up a useful point, though:
When depositing funds to Prosper, keep in mind that the minimum amount to lend is $50. If this particular prepayment had happened when I had no other available cash in my Prosper account, then that ~$49 would have to sit idle until I could deposit more money. (Such electronic deposits are taking roughly five business days right now.)
This time, I do have more cash in my account, so for me, it isn't an issue. But from this point forward, my Prosper deposits (should I decide to make them!) will probably be in increments of more than $50. That way, if my entire $500 account were in active loans, and one borrower elected to repay $45 of my $50 loan, I would have enough cash "padding" to ensure that I could initiate another loan as quickly as I'd like, rather than be forced to wait for another bank transfer into Prosper. Not that that's a deal-breaker or anything, though.
So there you go: The system seems to be working. I have received a principal payment, plus interest.
On the Flip Side
Conversely, take a look at these two loan requests ... from the same borrower:
Potential Prosper Loan #1
Potential Prosper Loan #2
One has to wonder about the stories presented there. Quite a change, yes? If you're a borrower, you'd be right to be a tad suspicious, in my opinion.
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