Why Borrow from a Bank when you can Prosper?

January 9, 2008

As the economy worsens and interest rates rise, it has become increasingly difficult to obtain a bank loan to consolidate debt, pay for college, buy a house, or start a new business. More and more people are searching for alternative solutions to their financial needs. So, my question is:

What can you do if your bank won’t lend you money?

Now there’s an alternative to bank loans and credit cards, borrowing on Prosper!

A group of smart economically-minded people got together and came up with a solution to the lending crisis. Now, instead of depending on a big financial institution that charges extremely high interest, you can experience social lending at Prosper.com.

Currently, Prosper is probably the leader in peer to peer lending. They help match a wannabe borrower with one, or a group of lenders. The company works much like an online auction. It matches the needy with people who have money to invest helping others, yet make a profit at the same time.

Naturally, a borrower’s potential for repayment is verified. Yet, the risk to the lenders is minimized. Why? Consider the following scenario for illustration:

John doesn’t qualify for the $10,000 bank loan he needs to start his new business. So, he fills out an application at Prosper.com. After he is approved as an acceptable risk, potential lenders bid on how much they are willing to lend and at what rate.

Two hundred different lenders are willing to loan John $50 each at a rate of 8%. The risk is reduced for each bidder since they are making a “micro-loan” of only fifty bucks. There’s likely no way John could have convinced 200 random people he didn’t know to lend him money but the lending marketplace makes it possible. At the end of the bidding period, Prosper takes $50 from each lender’s account and gives John a loan of $10,000. John will make his monthly payments to Prosper who then pays each lender.

Would you be willing to borrow money through a social lending agency?



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8 Responses to Why Borrow from a Bank when you can Prosper?

  • Patrick

    If I needed the money, I would certainly consider borrowing money from Prosper or Lending Club. As it stands now, I currently have loans out with both platforms. They are too early along to report earnings or losses though. I think it is an interesting concept.

  • Panther

    New to social network lending. I have heard of prosper.com I thought they were a mentoring organization for real estate/ internet marketing. I will have to review if this has changed.

    I sounds like a lot of paperwork to control 200 $50’s and borrower’s risk ability needs to be addressed.

    I work with private money and we work similarly in the IRA investment and private banking concept.

    Is the money in social lending cash/credit or IRA funds? Can you tell me where I can find the best info and resources? I enjoyed the enlightenment from this article.

    You provided me with a new way to work on building my business’s financial strategy.

  • WealthBoy

    I agree with Blaine. I would borrow from a peer-to-peer lending site if I could get a better rate than with the bank. I’d consider them to just be another lender like any other.

  • Jason

    I have lent some money on prosper and so far so good. Their are also other alternatives to prosper that probably worth checking out. Zopa and lending club, for example.

    From what little I have use lending club they are more or less the same as prosper without the bidding process.

    Lending club is running a referral bonus like prosper’s rite now. $25 once you fund your first loan

  • EA

    I would use Prosper to borrow money (if I needed an amount that fits within their guidelines and could wait the time it takes to fund). I have loaned some money on there, and it’s been a bit of a failure.

    I picked some widely different loans and some of them defaulted while the best one paid off early. So for me it didn’t work out but that might be my loan-picking skills.


  • Blaine Moore

    I would only be willing to borrow through prosper if I could get a better rate there than at the bank. Right now I am lending on it.


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