Prosper Review: Top P2P Lending Site

by Millie Kay G. on 2011-01-057

Thanks to Facebook and Twitter, most of us are well-versed in social networking. With peer to peer lending networks and sites, you have a chance to lend or borrow funds in a kind of money network. We’ve covered Lending Club quite a bit in the past (see our Lending Club review here). This time around, let’s take a look at another prominent and successful p2p lending site,

Prosper Review: Top P2P Lending Site

As an alternative to local banks with high interest rates, Prosper offers its borrowers a chance to list postings for fixed rate loans. It also affords a new way for investors to make money. It’s a site that allows investors (or lenders) to invest in notes that are based on loans taken out by borrowers. So Prosper basically matches lenders with borrowers who are interested in applying for personal unsecured loans.

If you become an investor, you’ll be able to scan the loan postings to select likely candidates whose loans can earn you a healthy return. Since its start, Prosper has gained more than 1 million members who have made loans of more than $200 million.

Now when you’re ready to begin as a borrower, you can select a category for your type of loan. Categories on tap include home improvement, business use, and auto use. In addition, you can opt for debt consolidation.

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Prosper: Borrowing Made Social

So what is the borrowing experience like with Prosper? For the amount of your loan, you can enter a number between $2,000 and $25,000. The amount you’re allowed to borrow might be lower than the maximum, though. The exact amount will depend on your rating from Prosper, which is analogous to your credit rating.

You’ll need to disclose your credit quality — whether it’s poor, fair, good, or excellent. If your credit’s good or excellent, you’ll be able to post your loan so lenders can go over your details. In the past, Prosper’s lending process allowed you to have your loan interest rate bid down to a lower rate. Prosper was known for its auction-based lending system, which afforded investors and lenders the chance to bid on loans. Interestingly, they recently did away with this auction system. They now give borrowers a preset interest rate that is based on the borrower’s Experian credit score and a Prosper score (a proprietary risk score that Prosper uses). Once a borrower creates a listing, Prosper starts the process of getting them their money. In addition, Prosper has added the ability to do partial funding, so if a loan doesn’t get to 100% within 14 days, they will complete the loan, (pending verification) if the lenders have funded at least 70%.

Since the loan’s a fixed rate one, you don’t have to worry about rate hikes sneaking up on you in the future. There aren’t any hidden fees lurking in the paperwork, either. Plus, your payments will be set at the same amount each month.

As an added convenience, the payments will be automatically taken from your designated bank account each month. Although some traditional banks might have a habit of penalizing people who want to pay off their loans early, you don’t face that problem with your Prosper loan.

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3 Ways To Make Money With Prosper

For those considering an alternative to traditional short-term investments, Prosper offers opportunities for the investor. It’s possible to invest as little as $25 and you may see returns as high as 10.4%. There are three investing models available: automated plans, individual notes, and existing notes. One of these approaches may work for you, based on your risk profile — either way, Prosper gives you the flexibility to try out different ways to invest in loans. Let’s take a look at these systems or models in more detail:

1. The Automated Plan
The automated plan lets you pick the type of loans that interest you the most. After you’ve determined your criteria (as an example, let’s say you prefer loans for people with excellent credit ratings, like I do), then the automated plan will go on to invest in loans that match this criteria. An automated plan can winnow out the kind of risk you’d like to avoid, and you won’t have to go through each listing one at a time. As an analogy, I would liken this to choosing a mutual fund over an individual stock.

2. Use Individual Notes
On the other hand, if you’re the type of investor who likes to diligently pursue a number of listings, then you can look at the individual notes. To make your search for the right individual note easier, you can sort them by keyword, listing number, or Prosper rating. When you look at an individual note, you can see the purpose of the loan, the borrower’s information, the rate, and the term. There’s also a section for asking the borrower questions and one for the investment history of the loan. As soon as you’re ready, you can hit the Invest Now button. To conform to our earlier analogy, this would be like selecting individual stocks over the simplified, diversified fund approach.

3. Trade Existing Notes
The third model, trading existing notes, may be of more interest to experienced investors. That’s because you’ll be using a trading platform to buy and sell notes to other Prosper members. This trading platform is operated by Folio Investing (member FINRA/SIPC), and you’ll need to open an account with them as well if you want to trade existing notes.

Whichever investing model you select, be sure to read the prospectus so you gain a deeper understanding of the risks you may face.

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Success Stories For Inspiration

To find out how investors and borrowers can benefit each other on a more personal level, you can read various Success Stories. These updates from real users let you see how your money can affect other people and how streamlined the borrowing process can be in comparison to traditional bank loans. One memorable story came from a member who started out as a lender and later took advantage of a loan for a home improvement project. This just shows how you can take on both lender and borrower roles in this network. For another story on Prosper, check out this article on How Prosper Financed My Trip.

If you’re interested in becoming an investor, Prosper can be a way for you to earn money on personal loans. For those who’d like to become borrowers, this peer-to-peer lending site can offer fixed rate loans that are potentially less costly than traditional bank loans. In either case, it’s worth the time to check out Prosper to see if it can benefit you.

Copyright © 2011 The Digerati Life. All Rights Reserved.

{ 7 comments… read them below or add one }

LifeAndMyFinances January 6, 2011 at 5:50 am

The Prosper website was a great idea and has helped many people – both loaners and borrowers. I know my friend attempted to loan some money through this site, but you have to be careful who you select to loan money to – he had a couple of payments that did not come in on time…. or at all for that matter.

So, don’t be enticed by someone that says they’ll pay you back 15% interest! They might not pay you back at all!

It’s best to stick with those borrowers that have a good credit score and are only willing to pay 5%. Heck, that’s way better than any CDs are paying out these days.

Mrs. Micah January 7, 2011 at 12:23 am

Prosper seems like it can be so useful for things like debt consolidation at lower rates, or for getting business loans. But there are also some people looking to acquire more debt. I don’t think I’d lend to them. I’ve actually posted about this before. 🙂

John Walsh January 7, 2011 at 10:28 am

Tried investing in these type of loans, but recently I haven’t been doing well. Maybe it’s because I’ve gone for a more aggressive portfolio so the defaults were higher. But I think it’s a good way to diversify your money.

Prosper August 23, 2011 at 6:58 pm

Prosper is a great alternative to high interest credit cards and gives lenders an opportunity to earn a nice rate of return.

Working Dollar August 23, 2011 at 7:01 pm

I have heard of (Prosper Lending) and always wondered how the lender was protected from the borrower if the borrower never paid back what they borrowed.

I’m sure this book covers that. Thanks for heads up on the source. I too have contemplated being a lender but was always afraid that I would get robbed by some borrower not paying me back.

her every cent counts August 23, 2011 at 7:02 pm

I’ve done well with Prosper so far and I’m getting into it slowly. I’m still nervous about the risk, but it’s gone pretty good so far.

Silicon Valley Blogger August 23, 2011 at 7:02 pm

Unfortunately, there may be borrowers who default on loans which you end up funding. That would be part of the risk of participating in the Prosper or other P2P environment.

As a lender, you’re really just looking to find alternative ways to make your money work for you. Lending is one such way, but like other investments, there’s just no guarantee you’ll protect your money.

Here’s a post on how to address the risk of P2P lending, which I wrote a while ago. Like all other ventures, don’t enter into it blindly.

The jury may still be out on how well P2P lending makes money for its lenders as I hear spotty results from people. As time goes on, I’m sure we’ll get a better idea about potential returns from moneylending via this method.

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