As I was reading Lazy Man’s latest Prosper post, one of the commentators made an interesting point.  Whenever you make a loan on Prosper, the term is automatically 3 years.  There’s no ifs, and or buts about that – 3 years is the deal.  If you’re investing a fair amount of money, this could present a problem.  What happens if you make a loan, and a year later realize that you really, really need access to those funds?

Enter a secondary loan market.  Say I originally loaned money at 15% – a very nice return.  But since I need that money right away, I’d gladly settle for a lower return.  In a secondary loan market, I could theoretically sell that loan for an 8% return.  I win, because I get my money right away.  The buyer of that loan wins, because he gets the spread between what I made, and the loan is worth.  In other words, 15% – 8% = 7%.  Roughly, anyway.  The vagaries of interest will make it differ slightly.  The really neat part is that the borrower’s payment history will be crystal clear.  If the borrower has paid on time for the entire year, there’s a very good chance that he’ll continue to do just that.  Lower risk = good news.

A secondary loan market is coming

Reportedly, Prosper is working on introducing a secondary loan market as we speak.  There are apparently some regulatory issues that they have to work out before it’s ready to go.  Prosper is currently a leader in the peer to peer lending field, and this secondary market is a huge step toward widening their lead.  I would keep my eyes on this going forward.  It may be a great way to snatch up some decent-return, low-risk loans.