A third year investing with Prosper: withdrawals and reinvestments

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I’ve been writing updates the last few years about my experience investing with peer-to-peer lending platforms (2024, 2025) and with another year in the books it’s a good opportunity to revisit how those investments did in 2025.

I continued to add money to my Prosper account through April, 2025, with my total account value reaching $20,545 in June, 2025. My loans were still performing well, but as I explained in my 2024 post, in addition to general macroeconomic risks and individual borrower risks, these platform loans also come with an unknown risk of platform bankruptcy: “if Prosper itself files for bankruptcy, the value of the loans will be assets of the bankruptcy estate, and lenders will be left with unsecured claims against that estate.”

After all these years investing with Prosper, what concerned me most was that the platform just didn’t seem to be getting any better. Statements would error out when loading in the mobile app. There’s no visual interface to see how different loans are performing over different timeframes. It’s basically still the Web 1.0 website it was when I started using it well over a decade ago.

So I started drawing my balance down.

Understanding the long tail of Prosper repayments

Prosper loans have a repayment term of between 3 and 5 years, so you might naively expect that you should expect to wait between 3 and 5 years for your principle and interest to be paid out. Nothing could be further from the truth.

Early repayment is in fact the norm on Prosper, which makes sense on a moment’s reflection: Prosper loans are relatively high-interest, but don’t have any prepayment penalties, so when interest rates fall or a borrower’s access to credit improves, they are quick to repay or refinance their Prosper debt with lower-interest-rate debt.

For borrowers with the highest credit ratings — the ones I loan to — this “problem” is even more acute, since those borrowers probably already had access to lower-interest-rate loans and were using Prosper as a bridge loan, without ever intending to pay it back in installments versus a lump sum in a few months.

This means once you start drawing down your Prosper loans, by withdrawing instead of reinvesting principal and interest repayments, you draw down your balance much faster than you’d guess based on the original 3, 4, or 5 year repayment term of your notes.

As I mentioned, my Prosper balance hit a maximum of $20,545 in June, 2025. I started making withdrawals in July, and by December I’d withdrawn $5,754 and my balance was down to $15,461: I’d withdrawn 28% of my starting balance in just 6 months. Not that due to the ongoing accrual of interest my remaining balance was still 75% of my starting balance.

For those interested in the details, here’s a quick breakdown of some of the highlights of my statements over that 6-month period:

  • principal repayments: $5,538

  • interest payments: $1086

  • contractual charge-offs: $333

  • bankruptcy charge-offs: $22

The point of this exercise is that you might intuitively think “I need access to this money in 5 years so I should start withdrawing it now, since my latest loan will finally be repaid in exactly 5 years” when in fact you can wait — and allow interest to accrue — much longer than that, because early prepayments mean you in fact have much readier access to your principal than the repayment terms themselves would suggest.

My 2025 APY, bouncing around as you should expect

In my 2025 post I explained the curious way that Prosper calculates your APY each month. To summarize, it is only accurate over long periods of time and when your ongoing investments are a relatively low percentage of your overall portfolio. Here are Prosper’s APY calculations for my account in 2025:

  • January: 9.25%

  • February: 8.93%

  • March: 9.11%

  • April: 9.35%

  • May: 9.56%

  • June: 9.50%

  • July: 9.28%

  • August: 9.35%

  • September: 9.12%

  • October: 8.96%

  • November: 8.85%

  • December: 8.75%

The timing of contractual charge-offs (after missing a certain number of payments Prosper sells the loan to collection agencies) and bankruptcy charge-offs (Prosper loans are discharged in bankruptcy) plays a modest but important part in this calculation, and as your account matures you should expect both kinds of charge-offs to steadily increase, ideally towards some equilibrium level based on the risk factors you selected your loans for.

Here’s what my inventory of loans looks like right now:

  • Current: 803

  • Late: 31

  • Defaulted/Charged off: 9

Interestingly, calculating my monthly charge-offs as a percentage of my active note balances, I get strikingly similar numbers for 5 of the last 6 months: between 0.35% and 0.4% (August, 2025, was an outlier at just 0.12%). You can use this value to create a crude estimate of the actual return on your own loans: on a 5-year loan a 0.4% default rate implies a maximum 27% discount on the promised interest rate (if all eventually-defaulting loans defaulted immediately).

Conclusion

I sometimes make fun of the cult of “diversification,” because of the pretense at neutrality. In fact, nobody wants to “diversify” out of assets that perform well and into assets that perform badly. What people really want is to diversify across profitable investments in case one happens to outperform another; they don’t want to be left on the sidelines.

Prosper has turned out to be a profitable investment over the past few years, and I’ll keep diversifying a small but meaningful part of my savings into their notes, keeping in mind that prepayments mean the money isn’t as “locked up” as the terms of the loans themselves would suggest.