What is Prosper Peer to Peer Lending?

Peer to Peer lending is a relatively new idea, made easily possible by the Internet. Prosper cuts out the middleman – the bank and lending officers. Imagine the overhead the banks have, and how much they pay their employees, millions I’m sure!

If you are looking for a way to invest and make more money than you could in a savings account, Prosper may be your best option.  I remember not too long ago ING Direct was actually giving us 5% interest on savings, but no more. And the percentage continues to drop. Here are a few things I learned while visiting proper.

Borrowers

If you’re looking to borrow, when you sign up with Prosper you’ll be given a rating. The ratings are AA, A, B, C, D, E, F, and HR.  AA is the best rating, HR is the lowest rating. For the borrower, this means you will pay more fees for your loan, and more interest.  If you are looking to borrow $10,000, with an AA rating, you will pay a fee of $50 (0.5%) at the beginning. So if you need $10,000 you should apply for a loan of $10,050 to cover the entire loan. If you have a rating of A or B, you will pay a 3% fee or $300, so you would want to apply for $10,300. If your rating is C to HR, your fee will be 4.5% or $450, so you would want to apply for $10,450.

As I looked through the listings it was interesting to see the various titles for the listings.  If you are planning to borrow through Prosper, I would like to suggest that you use an appropriate title for your loan, which will help lenders know immediately what you are wanting your loan for.  As an example, if you needed to roof your house, I would suggest the title of “Roof Leaking, Repair Urgently Needed” or something similar.  Some of the titles are usernames, like spooky78, which doesn’t give any indication of the loan needed.  With over 600 loans currently in place at Prosper, I would think you would want to be as descriptive as possible to make yourself easily accessible and to stand out from the crowd as much as possible.

I found it interesting the many credit card consolidation loans desired at what seem to me to be outrageous interest amounts, 20.99% is a very high interest rate.  I wonder what is the rate on their cards currently?

Lenders

If you are looking for a good return on your money, better than you can get with a savings account, Prosper might be right up your alley.  There are hundreds of loans from which to choose, and you can search using keywords. If you are interested in investing in someone who raises horses, or dogs, search those terms. If you want to help someone replace their roof, or remodel their home, or if you want to support someone getting started with a small business.

Safe Investment or Risk?

Obviously you’re taking a risk to support a loan with a low rating but the high interest rate may make it worthwhile to those who don’t mind taking a risk, and you would almost certainly be giving someone a chance to get back on their feet.

The safer loan would be from the borrower with an AA rating, but the return is much lower.

Have you ever used Prosper?  As a lender, would you take the risk or play it safe?

 

 

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3 thoughts on “What is Prosper Peer to Peer Lending?

  1. I have been a Prosper lender for about 8 months now and I have been very happy. My loan portfolio is still young but I have no defaults and my borrowers that have gone late are all current again. I am focusing on risky borrowers, so my returns thus far are over 20%. I don’t expect them to stay that high over the long term because I will have defaults but I still believe Prosper (and peer to peer lending in general) is a great investment.

    You mentioned the borrowers paying 21% for a debt consolidation loan. I have seen many borrowers like this and some mentioned their interest rate on their credit cards are over 30%. So even at 21% they will be saving money every month. And with a p2p loan they get a fixed loan term and a fixed payment which is very appealing for these kinds of borrowers.

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  2. I use Lending Club, it’s similar to Prosper but with a smaller default rating, since they reject a bunch people and don’t even let their loan be published to get funded. But instead of you putting in a bid for the precentage you would let your $ be loaned out at, Lending Club decides the % they pay, and you read all about the loan, ask questions, and then decide if you would like to fund them.

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  3. I’ve heard of this kind of thing before, and I have to admit that I’ve always been a little skeptical – both as a borrower and lender. Peer to peer lending sounds risky, but it’s those high risk investments than can generally offer the biggest return. I do agree that cutting out the middleman is a fabulous idea and one that could save borrowers a great deal of money over time.

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