Monday, March 21, 2011

peer to peer lending with prosper.com

I've been following news about this company for a few years now. My credit rating has been poor for a while, mostly due to mistakes I made in my first marriage, including a bankruptcy some ten+ years ago. I've got no debt now, and that's been a hard slow climb. One of the things that helped a lot was prosper.com. My lovely wife has done this, and we paid off one of her loans just a month ago.

This is a peer to peer lending company. On one side, you have people looking to borrow money, On the other, you have people willing to lend it. Prosper takes care of all the management details for a small cut.

Once you request a loan, the Prosper company gathers info about you, just like a bank does, does some risk assessment, and give you the options you qualify for. If your credit is good, you can get a loan at low interest. If it's not so great, you can get one in the mid range, and if it really sucks, they will still give you options at high interest. For an example, lets say they offer you between 10% and 18% options.

Next, you tell your story as to why you want the loan. short is good. Be honest and be clear. Pick one of the options... people might be more willing to fund you at a higher interest rate than a lower one. So you pick 14% and the amount you want.

At this point the second part of Prosper comes in. People looking to invest money. They go to the Prosper listings, read your story, and make a decision on whether to loan money to you. They don't have to give you the whole lump sum you are asking for. They may put a hundred dollars in the pot for your loan, or a thousand, or whatever. If enough people do this, then your loan is funded, and a deal is struck.

Prosper then handles the direct deposit of you loan payments, and takes a small cut before dividing up those payments, and doling them out to all of the lenders, along with the interest. They also handle all of the details if you are late, or if you default, just like a bank would.

If for whatever reason, you don't get enough people willing to fund your loan, then all the people who DID put money in the pot get it all back, and they look for other loans to fund. You might want to try again, same deal higher interest rate, and see if you get the loan this time.


I'm seriously planning to put a hundred a month into prosper loans, so that eventually I get it all back with some interest... Around ten percent return is common, and while there is risk of default, it's better than what I can do anywhere else right now. If I do this every month for a year or three, eventually I'll build up a pretty good money churn.

After all when we borrowed it, the company was honest and straightforward and helped when banks would not. Now I want in on the other side.