Lessons Learned From 50+ Prosper.com Loan Defaults

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With two years of Prosper.com lending under my belt, I wanted to take a deeper dive into the 50+ loans that have defaulted on me during that time.

Prosper does NOT make it easy to access or analyze this information on an aggregate level, so it turned into a pretty tedious data-entry project. (Which I outsourced to my virtual assistant, of course. Thanks Patty!)

The results are pretty interesting so we’ll go through point by point.

Loan Amount

My theory was that the a higher loan amount equated to higher risk, which does not turn out to be the case. On Prosper, loans typically range from $4000 to $25,000, depending on the borrower’s need and credit-worthiness.

I was surprised to find that 70% of the defaulted loans were for $8000 or less. The median defaulted amount was $7000.

In hindsight, I think it makes sense. Borrowers taking out a $4000 loan for example, might not qualify for a $15,000 loan. So in that sense, a lower loan amount could signify higher risk.


The median lender yield of the defaulted notes was 24.99%.

Prosper Loan Rating

Prosper grades each borrower on a letter scale from A to E. The lower the letter, the higher the return and the greater the risk.

These numbers are pretty worthless because I can’t get an accurate percentage of the overall loan volume. For instance, it would be far more valuable to know the percentage of D notes that defaulted, rather than just the raw number.

Loan Purpose

Borrowers must also submit what they intend to use the money for. The most common purpose is debt consolidation, but an entire range of reasons exist. Some more entertaining than others.

defaults by loan purpose

I guess I have a soft spot in my heart for business loans but they are inherently risky ventures.

Also, I’ll be sure to avoid loans for “Other” in the future — they seem to default at a disproportionately high rate!


Does the borrower’s location play a role?

Again these numbers don’t mean much because I couldn’t find a way to easily gather the overall aggregate number of loans made to each area. Instead this chart just shows the percentage of defaults that came from each region.

defaults by location of borrower

Prosper Score

Prosper also assigns borrowers a numerical score from 1-10 based on their creditworthiness. In general, it aligns pretty closely with their Rating.

Nothing really stands out here, especially because again, I’m missing the big denominator that would show the percentage of defaults among each Score group. But I’ll include it anyway.

defaults by prosper score

Credit Score

I was surprised to find even borrowers with excellent credit history defaulting on their loans.

defaults by credit score

Now Delinquent

In each note, Prosper will show you if the borrower has any accounts that are currently delinquent.

I consider these a red flag and try to avoid lending to these people, but a few slipped under my radar. In fact, 22% of my defaults were from borrowers with 1 or more current delinquent accounts.

7 Year Delinquencies

Beyond the current delinquencies, Prosper will also record the number of delinquencies the borrower has had over the past 7 years. Again, I recognize people can change but still consider this to be a red flag and try and avoid making these loans.

More than 25% of my defaults were from borrowers with 1 or more 7-year delinquencies.

6-Month Inquiries

This statistic shows how many times a prospective borrower’s credit has been run in the past 6 months. Basically, are they out shopping for credit a lot or are they pretty set?

Among my data set, the average number of credit inquiries was 1.4, and the median was one.

But this may be my biggest takeaway: nearly 70% of the defaulters had 1 or more inquiries.

The recommendation to set your filters to 0 for this item has been mentioned before by others but I will reiterate it here. In my data, this appears to be one of the strongest factors in default rates.

Credit Age

When the borrower opened their first line of credit can be used to get an approximation of their age.

I don’t find anything too interesting in this data. It could be that older people are more responsible in paying back their loans, or it could just be that fewer of them are seeking loans on Prosper.com.

defaults by first credit line date

Credit Lines

The median defaulter had 27 lines of credit open. Does that seem really high?

I think a few lines are good, because it shows they know how to use credit, but too many can get ugly.

I’ll aim for borrowers with fewer open lines in the future.

Revolving Balance

The median defaulter carried a $7000 balance, but I’m not sure how to interpret the data.

A higher balance could be a risk signal, but the opposite can be true as well. Case in point: 8% of defaults were from borrowers with a $0 balance.

Bankcard Utilization

To me, maxed out credit cards signal a poor financial situation and a potentially risky loan. The general rule of thumb is to keep your balance at or below 33% of your total available credit — any higher and the bureaus may reduce your credit score.

Indeed, a third of my defaults were from borrowers using 66% or more of their available credit.

Home Ownership

Conventional wisdom holds home owners should be a better credit risk. After all, some bank probably lent them a whole lot more money than they’re asking for here.

But my data shows no definitive correlation to suggest renters are significantly riskier.

defaults by home ownership

Debt-to-Income Ratio

The debt-to-income ratio is a rough indicator (the lower the better) of a borrower’s ability to pay back the loan. Or at least it’s supposed to be.

My data shows a surprisingly high number of defaults from borrowers with low DTI ratios.

If anything the takeaway here is to avoid the N/A / Not-Calculated ones but other than that don’t but too much weight on this metric.

defaults by debt to income ratio

Length of Employment

More than half of my defaults came from borrowers with less than 5 years of employment at their current job. The more tenured workers defaulted as well, but in general the new hires were riskier investments.

defaults by length of employment

Stated Income

I was surprised to see so many defaults from high earners (but then again, it is “stated” income, not verified income).

But in general, the less money a person makes the harder time they may have repaying their loan. File this under the “no duh” category.

defaults by stated income

I typically try and avoid making loans to those earning less than $25k a year so the sample size among that group is likely very small.


The riskiest occupation is “Other.” Roughly 35% of my defaults were from borrowers who said their job was “Other,” “N/A,” or left the field blank entirely.

In the future, I will be avoiding these borrowers.

Previous Borrower?

Prosper.com will also tell you a borrower’s history on the site if they’ve had a previous loan. It will show the amount borrowed and their repayment history.

Historically, previous borrowers have been an excellent credit risk with above average returns. Because of this, I focused a lot of attention in 2012 on repeat borrowers.

However, this is not a perfect strategy. Nearly 25% of my defaults were from previous Prosper borrowers, those with a supposed proven track record of repayment.

Description Filled Out?

One of my personal theories was that if the borrower took the time to fill out the optional description area, and explain why they needed the money and were a good candidate for the loan, they would be a good risk.

Or at least a better risk than those who couldn’t even be bothered to type in a few short sentences.

Turns out, I was way off! Almost 90% of my defaults were from borrowers who’d filled out the description text.

Takeaway: Don’t necessarily discount those who skipped the description, because filling it in doesn’t seem to correlate with any improved loan performance.

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12 thoughts on “Lessons Learned From 50+ Prosper.com Loan Defaults”

  1. As you say, without the percentage, raw numbers are difficult to evaulate. However, what really stands out to me is the chart of defaults by Prosper Score. If the score is correct, there should be less defaults as the score goes up, but your chart seems the reverse of that, to me. I’ve seen on Prosper-Stats.com the same seemingly non-correlation between Prosper Score and default rates. Their scoring methodology seems suspect to me. But I really enjoyed your post, your assessments, and thank you for once again teaching us all that we need to analyze our assumptions and our results and adjust our investment strategies accordingly. Way to go!

  2. Does anyone know who to call to settle a debt with prosper? I defaulted a while back and the account was “charged off(sent to collections)” then it “circled back to prosper” and I cant seem to speak with someone to attempt to settle this debt. Ive spoken with customer care at (866)615-6319, collections at (877)304-0146, and past due departments at (877) 334-7864. I assume someone is holding this debt and i just want to make good on my responsibilities.

    • Did you ever get back to someone at prosper? Also, when you were in collections did they harass you, family, neighbors, etc by phone?

      • I never got a call back in the 23 times I called them. They never called and harassed family or friends. I ended up having to pay $2010.00 on a 1200$ charged off account in collections. They make it impossible to call and make a debt settlement because they end up making more money this way.

        • Because they don’t seem to care. its not their money being loaned out. probably more of a hassle to try and collect. anything above and beyond principal and interest is going to Prosper/Collections which is pure profit for them.

  3. My husband lost his job after 21 years of employment and after almost a year of part time job and unemployment he ended up taking a job making $20,000 less per year making it impossible to pay our creditors including prosper. I called prosper to see if they had any suggestions for us, or if they can work with us on this. He told me no, the only thing he could do for us was take automatic payment off so it won’t come out of our bank acct every month. I feel absolutely horrible since it is peer to peer lending. We owe about $14,200. Our payment is $398 a month. If we were to make $50 payment, would that be better than nothing at all. What would happen if we completely default, will they sue?

  4. I too have tried to get help from Prosper. I can’t afford my payment. I’ve made a years worth but crap happens sometimes. I asked to refinance. NO. IVE ASKED TO EXTEND THE LOAN. NO!! I want to pay my loan and not screw anyone over but prosper makes it impossible!!!!!! So I said to them ou rather have people default than pay something. All they say is sorry we can’t help you

  5. To those of you who are defaulting on the loans:

    They can’t renegotiate the terms of the loan because the loan attracted investors based on percentage rates and risk vs. return. If you were to negotiate the loan to a different rate, time, etc. then you would be doing so without the consent of the people who funded the loan. It isn’t fair to the investors who invested X dollars into a loan with a nice percentage rate, and now will have that rate greatly reduced, or have their money tied up for even longer. Do you see the legal problems here? If Prosper funded the loan then they could reset the terms. This is just how this style of lending goes.

    Also, consider yourselves lucky to have been funded. I steer clear of a lot of loans based on risk metrics that I can see in your loan application. I would HIGHLY suggest finding out a way to pay your loan. You will destroy your credit over this and thus make it even harder to apply for future credit with any institution. Also, if you return to Prosper, then we (investors) can see that you failed to pay on a previous loan. That will almost guarantee that it won’t be funded. I understand life happens, but it isn’t as simple as just walking away.

  6. I’d like to know what happens if a Prosper borrower goes through a debt settlement agency. Does Prosper deal better? What if the borrower also has a Prosper investment account? I know someone going through this process – can’t afford their Prosper loan due to job loss, but can’t liquidate many assets either. They are terrified, as this was supposed to be part of their retirement strategy.

  7. This data is useless without knowing the breakdown of # of loans made within each of these categories.

    For example, “70% of the defaulted loans were for $8000 or less.” If 80% of total loans made were for $8000 or less, that would mean the 70% defaulted % is low and that these small loans default at a lower rate than high-value loans. We don’t have the breakdown for total loans made, so we can’t conclude anything about which loans have higher rates of default.

    Same thing for all the other categories. Lots of defaults in “debt consolidation” loan purpose category. Maybe that’s just because lots of the loans fall in that category. Or, maybe it’s because loans in that category default at a high rate. We don’t know from this data.

  8. Hello,
    I was reading different cases to find out what would be best for me, I have 2 propher loans, one I can do, the other one I can’t, been working with a debt management program, but Prospher won’t work with the or me, till it gets past 31 to 60 days late, i am qualified for bankruptcy,but i want to try and pay my debts, I only have social security right now, what should I do.


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