zcommodore

There are rumors flying about new information provided by Chris Larsen at the Hawaii Meet & Greet that I mentioned in my last post. One of them is the possibility that Prosper will raise their rate caps to 36% from 30%.

Personally, I think this is a bad idea. If you look at my previous blog post, you will see where I mention how default rates appeared to drop significantly in the months where Prosper's rate cap was a lot lower (24%?). Additionally, when I look at the 3rd party sites at the early loans made at 30+% rates, very few of them are still current. A few paid but many (most?) are defaulted or headed that way.

High rates attract newbie lenders who don't understand risk. A defaulted loan affects ROI a lot more than lower rates. More bad loans will likely be made if/when this happens and it's going to hurt Prosper due to the higher default rates I believe.

I suppose Prosper may be trying to make HR borrowers more attractive again to lenders since by every measure I've seen, HRs are a losing proposition even at 29%. It doesn't really matter what rate is offered if the borrower can't pay. 36% of 0 is still 0. Even if a borrower can pay for a few months at those rates, it can take quite a few months before a lender even breaks even and few HR borrowers can hold out that long.

As I said before, 36% rates are a bad idea.