Is online peer to peer financing for you? Check out our Lending Club review as well!
At these P2P lending sites, I’ve been more of a lender, but I found a guest poster who was willing to share their experience as a borrower at Prosper.com. Here are Debbie Dragon’s views on Prosper.
Every time I turn on our local news channel, I am presented with a segment called “are you feeling the pinch?”
Our typical evening news regularly includes a good five minutes or so of information about how people in our community are dealing with their financial situation. Most of the people they interview are working second jobs, or are trying to earn money online to take some of the pressure off; almost everyone mentions finding it hard to keep up with their monthly payments and some talk about the inability to get approved for credit when previously it was never a problem.
Due to the direction the economy is going, I think peer to peer lending will increase in popularity — both for lenders and investors looking for alternative uses for their money, as well as for borrowers looking for loans.
Borrowing Through Prosper: My Peer To Peer Loan Story
I’ve used a peer to peer lending site to fund a loan that I needed and liked the site for a few reasons. Here’s how it worked for me:
I got my loan quickly.
I actually have a loan through Prosper.com. I got it in July of last year, to finance part of my trip to Australia to speak at a business engagement. My business was in it’s young and growing stage, so I just didn’t have a few thousand dollars available to pay for the trip, and Prosper made it possible for me to put in my request for a loan. The process didn’t take very long for within a couple weeks — I had a loan funded, money deposited directly into my checking account, and was on the plane to Sydney!
It was easy and relatively convenient.
I found Prosper to be a little easier to get approved for a loan than a traditional bank lender because of my self-employed situation. When I set up my loan request, I was able to show my income with bank statements, whereas with a bank, I’d go through other checks and be required to submit my tax return information. Unfortunately, my business had shown a loss for the last two years and bank statements would be not be sufficient enough information for a bank. It was clear to me that I would have issues with obtaining a traditional loan. This is not to say that people with really bad credit will be approved for a loan through a peer to peer lending service, for keep in mind that Prosper does review your financial background and credit history and will rate you accordingly, while lenders are going to decide whether or not to loan their money to you based on the information you provide; which includes your credit score, debt to income ratio, and other factors. Most lenders minimize their risk with person to person financing by only lending to individuals with decent credit histories.
Lending Through Prosper
As an investor, you’re lending money to individuals and earning interest over the length of your loan. You actually set how much you are willing to pay towards an individual’s loan listing along with the minimum amount of interest you find acceptable for the amount you’re willing to lend. Unlike lending directly to friends or family (usually with the verbal promise of “yeah I’ll pay you back”), you can set up a diversified lending portfolio through Prosper (and other peer to peer lending sites) to ensure that you are minimizing your risk.
As our economy turns and online communities get more traction, I’m expecting peer to peer lending to became as commonplace as requesting a loan from your local bank.
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{ 6 comments… read them below or add one }
I’m hearing more and more about this peer to peer lending all the time. I haven’t tried it myself since I’ve got other things going, but hopefully it’s working nicely for everyone who’s doing it. Since everyone’s promoting it, I assume it’s either alright or it’s just got a great affiliate program.
Fiscal Musings,
Glad you brought that up! As an affiliate program, I don’t think it’s “special” compared to anything else, although a lot of folks in my pf network are indeed trying it out. Perhaps peer pressure helps as well! But I also think it’s a great concept in theory. We’ll see how this bakes further as this domain matures.
Don’t get into it if you aren’t entirely comfortable, that I have to say! I am a very conservative borrower myself, but I’m exploring lending through this avenue. I don’t expect it to be anything like investing in equities of course, but just another way to invest (maybe similar to having bonds). I also believe it appeals to your more personal side by letting you connect with others whom you know will be helped by your loans directly.
Oh yeah, and since I’m what you call a “loan dunce” (my pf ‘expertise’ if I have any, is in investing and socking away money… 😉 ), joining the P2P community is a great opportunity for me to learn more about credit and debt, and to beef up my overall financial IQ.
She is the type of person I would never lend money to. I’ve already commented on this in this blog and on my own, but I would never lend money to a person for business. Too easy to lose money as most fail, and a business can easily file for bankruptcy with no damage to the owners. I’ve been investing in Prosper for a while now, and don’t expect big returns. Defaults will happen and will severely limit profits.
Just another one of the ways the Internet is creating great free enterprise opportunities for the common man! As lenders, we get to compete with banks and get a piece of their action. As borrowers, there are more choices and flexibility, and greater chances not to be kept down because the banks won’t approve them. Prosper also has a terrific referral program, what more could you want?
I’ve been reading about peer to peer lending and it strikes me as a great idea, but what enforcement mechanisms are in place to prevent people from running away with the money they get from one of these sites?
Loan Ranger, you’ve asked a good question — one that’s asked by regulators: “‘Since you don’t know who these people are, you can’t collect from them,’ said Kevin Anselm, chief of enforcement with the Oregon Division of Finance and Corporate Securities.”