Peer to peer lending is one of the most exciting financial developments of the past decade, worldwide. P2P emerged in England shortly before it began cropping up in the United States. Prosper was the first significant P2P lender to emerge in the US, while a smattering of similar lenders took hold in the UK, giving way to a healthy and competitive market for borrowers and lenders alike. Things took another turn in the US, where much of the “peer” lending provision has been replaced by the standard lending players of the financial industry. One of the last bastions of true “peer” borrowing and lending is from the original: Prosper. Prosper offers quick financing at good rates to borrowers and steady returns for lenders.
Borrowers: P2P lending has a lot of benefit for borrowers. It tends to benefit those who are unable to receive financing other ways, or those who cannot wait the lengthy amount of time required for traditional loans. Because in many lending situations, credit score is the primary factor for determining credit worthiness, P2P lenders like Prosper offer a more nuanced method of determining the rate at which a loan will be provided to a borrower. When you apply, you will quickly be notified of available APR, determined by your personal risk level, graded AA through E, and HR at the end (high risk). AA borrowers can secure financing with rates as love as 6.7%, while the highest risk candidates will see very high rates of 30% APR+. Pros for borrowers: Fast, Accessible, Good rates available to some. Cons for borrowers: Likely expensive. Because Prosper accepts only candidates with credit scores of 640 or above, even people with good credit scores may find high interest rates associated with these loans. However, those with excellent rates will find it very affordable.
Lenders: Prosper offers a great investment option to P2P lenders. As with many other P2P lending platforms available in the world, Prosper lets lenders “Bid” on different loan proposals, using a reverse auction format. Lenders see potential borrowers’ risk classes and associated default risk. They then decide if the amount of risk inherent in the loan is worth the money they’ll stand to make in interest. Many lenders see average returns of 5% or much more, when weighted with default/bad debt in mind. If a lender needs quick access to cash, he or she can liquidate a loan by selling it on a secondary market within Prosper.
Prosper is trusted and proven to get results for borrowers and lenders alike. Because they take on only a certain level of qualification for lenders and borrowers, their risk level is low. Borrowers are unlikely to default. However, because their standards for approval are somewhat high, the APR available to the average borrower may be a little too high. Still, I recommend Prosper for borrowers who have very high credit scores, and to lenders who are interested in diversifying their investments within an exciting, growing financial sector. Prosper has good service for all, yet another reason why they have remained a big player in the American P2P landscape for a decade.