Feb 21st, 2008
Ask the Readers: What Do You Think of Prosper.com?
I first learned about Prosper.com through Tricia over at Blogging Away Debt. Prosper is an online community that’s focused on peer to peer loaning and borrowing of money. In some ways it’s similar to eBay; borrowers create listings that lenders “bid” on to fund.
Given how low interest rates on money market or other “high yield” savings accounts have gotten and the current volatility in the stock market, I wonder if it wouldn’t be at least an interesting experiment to put some of my money into a Prosper loan, although with the way that, for instance, the Vanguard GNMA Fund has been performing, I’m not sure that might not be a better idea.
Interest rates for borrowers on Prosper are fixed, there are no pre-payment penalties, and, according to Prosper, no hidden fees. Borrowers pay Prosper a closing fee of between 1-3% depending on their credit rating; borrowers must be U.S. citizens with minimum credit scores of 520 and a bank account. Borrowers are screened in an identity verification and anti-fraud process. Lenders face similar scrutiny; all participants in the loan process can remain anonymous with Prosper serving as the middle man for both sides.
Prosper loans are all unsecured for terms of three years and a total of up to $25,000. If a borrower defaults or pays late on a loan, they have the same types of consequences that a borrower from a bank faces: a late fee and potentially a lower credit score and a negative item on their credit report.
The advantage of being a lender on Prosper vs., say, my iGoBanking account is the possibility of a higher rate of interest. The disadvantage is, of course, increased risk. I would never recommend to anyone to put their emergency fund or other “chicken money”–money you must act like a chicken with, because you can’t afford to lose it–at risk; however, if I had money that wasn’t quite that much of a “no lose”, I’d consider some of the lending opportunities on Prosper. It appears some borrowers on Prosper have tried traditional banks and credit unions and not been successful, so there is obviously risk involved for the lenders; the upside is a higher potential return.
Have any of you used Prosper? What are your experiences like?
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.
Tim Ramsey
I’ve played around with both Prosper and Lending Club. They are good investments but I would stay away from the lower credit grades and start out very slow. Stay diversified and only choose P2P lending if you have debts paid off, an emergency fund, and have already maxed out more tax friendly investments.
Check out my blog for some more info, especially the “New to p2p lending?” articles listed on the top right.
Good luck and let us know how it goes!
Tom
I guess it would help if I actually gave you a link to my website:
Prosper Lending Review
I hope you find it helpful!
Tom
Tim,
Thanks for the kind words.
Tom,
Wow, I didn’t know about your site until now; I’ll give it a look as I consider Prosper and what they have to offer. Thanks much!
I have tried both Prosper and Lending Club with lending out small amounts. I prefer Lending Club for a number of reasons, including the fact that you can make smaller loans so if one person defaults then you only lose $25 on them, instead of $50 like with Prosper.