Prosper.com : People-to-People Lending
July 27th, 2006I recently came across a site called Prosper.com. Prosper is a new way of borrowing and lending money on the internet. Their platform allows you to borrow or lend money to other people. Yes, real people like you and me. This was somewhat of a break-through in my opinion. This is something that we’ve never seen before in online lending.
I weighed out the pros and cons of this new lending platform, and this is what I came out with:
Pros as a Borrower:
- You have a better chance of getting a lower rate than at a bank or other financial lender. The rates I’ve seen at Prosper are a lot lower than the rates being provided by the big lending institutions. An added advantage to borrowing through Prosper is that lenders (other people) bid for your loan. This is why I recommend you leave your loan listed for the full duration, and don’t select “automatic funding.” Automatic funding is when your loan gets funded immediately after it reaches the 100% bid mark. By leaving your listing open for the full 5, 7, or 10 days, you’ll have a better chance of getting a lower rate because lenders will be bidding against each other to win your business.
- You can qualify for a loan even if you have bad credit or no credit. There are hundreds of applicants with poor credit, but many still qualify for a loan. People decide whether you are approved, not some underwriting guidelines.
- The max you can borrow through Prosper is $25,000 which is a lot more than most personal loan lenders.
- Borrow in the convenience and privacy of your own home.
- No paperwork to fill out. All applications are filled out via the internet.
- Secure online transactions.
- If you change your mind about your listing, you can cancel.
Cons as a Borrower:
- Can’t really think of any yet. Just to test out their system, I applied for a loan. The entire transaction went smoothly, and I was approved overnight. I do have an “A” credit grade by their standards, so I’m sure it help speed the process.
Pros as a Lender:
- It’s a good way to earn some extra income if you have some money to invest.
- The returns on your investment is much higher than a savings or CD account. I recently lent out $100 at a rate of 15.5%. 15.5% is a lot better than 5% don’t you think? Of course, you’ll need a bigger portfolio in order to see some real signicant returns.
- You have the flexibility to decide who you lend to, and how much. Prosper will provide you with the borrowers’ credit rating, as well as any public records that may appear on their credit report.
Cons as a Lender:
- Your investments do carry some risk, especially if your portfolio consists mainly of high-risk loans.
- You have no face-to-face contact with your borrowers, although, many borrowers do upload their photos to their profile.
I’ve been involved as both borrower and lender, and the experience has been positive so far. I will keep you posted as new developments come up.
