If you invest at Prosper.com lenders should not need your money for the next 3 years. Because at the moment all loans have 36 month terms. And – apart from the chance that the borrower might select to pay back the loan early – lenders can not withdraw money still loaned early (this does not apply to interest and monthly repayments).
Lenders have called for a secondary market as early as February 2006.
What is "secondary market"?
The idea is that a lender can sell his investment in a loan to another lender who buys it. It could work similar to trading bonds.
Suppose a lender have invested $100 in a AA loan at 12% interest, it is current and has still 18 month to run. Depending on the assessment of the buyers it could sell for a premium, that means the buyer pays the lender a price above $100 e.g. $102 or it could sell at a discount below $100 e.g. $97.
A premium would occur if buyer demand is strong, assessing that the 12% (and the other loan specifics) are an above average market deal. A discount could occur if the loan is assessed by the buyers as below average (on interest rate or other loan specifics) or if the risk for default is impacting (e.g. the loan is already late).
Aside from liquidity advantages a secondary market would offer more options for lenders. Since some loans fail first payment a lender might choose to build his portfolio by buying loans that have made their first three payments and are current. It even seems possibly that loans would be packaged (like mortages) and auctioned off. This way a lender could specialize in picking loans and then reselling them after several month – reselling risk (and living of his reputation as in delivering good picks – okay sounds a little farfetched, I admit).
Will the Prosper secondary market launch?
The other (international) p2p lending platforms are not even close to implementing secondary market functions.