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Prosper Social Lending Site Review

Those who want to know how to use the Prosper peer to peer lending site are going to fall into two categories: the borrower and the investor. P2P investing in America is an industry in the hundreds of millions of dollars.

Also called “social lending”, peer to peer loans involve average people giving money to other average people. No banks are involved and people with good credit, so-so credit, or bad credit receive loans.

Here’s how Prosper social loans or microloans work.

How Do Peer to Peer Loans Work?

Peer to peer loans are cheaper than bank loans because they don’t involve the same overhead. A traditional bank or finance company has huge overhead costs, because they have to employ a large workforce. A bank has to pay for all those bank tellers and accountants and secretaries and loan officers–not to mention the bank president. To pay for all these professionals and office clerks, the bank has to charge interest rates to cover costs. The bank then invests the money you put in the bank in loans to other people in your community, but also into stocks, bonds, and other investment opportunities. Hopefully they make enough money to cover the costs, but a big part of their profits come from the interest they charge borrowers and the fees they charge depositors. They have an incentive to raise prices.

Peer to Peer Loans through Prosper

Peer-to-Peer Lending Often Involves an Investor and a Borrower, But without Banks Getting Involved.

P2P lending eliminates the banking institution, so it eliminates many of the costs. Instead, people with extra cash join a social lending network like Prosper and invest in loans to other people just like yourself.

The people borrowing money might be entrepreneurs needing start-up cash, a small business owner needing cash to expand their services, or a private individual who’s had an emergency and needs extra money to make ends meet until the crisis is over.

Whatever the cash, dollars change hands like in a traditional lending environment, with terms, conditions, and interest rates all put in place by mutual consent. Prosper acts as the broker, subtracts a finders fee (or brokers fee) from both ends of the transaction, and helps creditors retrieve their investments if a borrower stops paying off their loan.

Social Lending Online

The interest on these social loans can be high or relatively low, depending on your credit rating and what the investor is willing to offer. What’s important is the rates tend to be lower, because costs are kept down. Borrowers fall into various categories, so creditors select the amount of risk they’re willing to take on, along with the interest rates they’re seeking in return. Even more, if you have bad credit or no credit, you’ll be able to find people willing to outsource their money to you in order to help you get back on your feet. If you dread the idea of walking into a brick-and-mortar bank and submitting to a credit check, you can go online to Prosper, get a loan from an anonymous stranger, and not have to face the social shame of having bad credit. Social lending lets you get help from a new friend while remaining safe and secure behind a veil of anonymity.

Prosper is more than just a brokering website, though. Prosper is a social networking community for people wanting to learn how to get out of debt, how to make money online through investments, and otherwise how to reshape the world of international financing. The old system doesn’t have to go on forever and average PC users on the Internet can be a part of a revolution in how people access money streams. The social networking aspect to P2P networks are real, because Prosper’s administrators and their online investors know that a person is going to be more willing to pay back a loan if they person loaning them money is a part of their community, their circle of friends, and therefore their personal identity. Prosper is thus the Facebook or Twitter of online personal financing.

Microfinancing in the 21st Century

I foresee a day when everyone gets loans through microfinancing. The world economic crisis of the last few years has shown people the weakness and (sometime) stupidity of the old financial system. Banks are antiquated institutions full of big bureaucracies and inefficiencies. Combining e-concepts like “crowdsourcing” with online financial transaction brokers like eBay and Amazon, the people at Prosper figured out that individual people with money were still out there, so it was just a matter of connecting the people with money to interested borrowers with a need for cash and who, for whatever reasons, don’t want to walk into a bank to ask for a loan. In many cases, banks started turning people away, so people found another way. Prosper is a big part of how the US financial world is changing…and changing for the better.

Prosper Personal Loans – Person-to-Person Deals

When you go on the Prosper website, you’ll see one button which says “I Want to Invest Money” and another button which says “I Want to Borrow Money“. Click on the button which describes you and sign up to become a borrower or investor on Prosper.com . Once you do this, you’ll need to provide financial and background information.

Prosper Loans for Borrowers

For borrowers, you’ll need to submit to a credit check. Don’t worry about being embarrassed or humiliated by this process. Your credit history only place you in one of seven different categories, ranging from “AA” to “HR”. This determines your interest rate, which ranges from 6.59% to 35.84%. That last rate is for those people with the worst credit rating, so don’t be worried this is some scam if you have good credit. Prosper is regulated by the same authorities that regulate American banks. What those highest interest rates do is given the investors the biggest return possible on their investments, enticing people to take a chance that you’ll pay back your debts. If you’re in the HR range, consider Prosper an credit opportunity of last resort. You can use Prosper to dig yourself out of the hole you’re in–anonymously, honorably, and straightforwardly.

Prosper Loans for Investors

Lenders on Prosper sign up, fund their lending account, and select the range of investments they’re willing to make. You choose a lending tier you want to focus on. If you lend money to AA, A, or B rated members, you’ll receive interest payments on the lower end of the scale. If you choose to make investments with C, D, E, or HR credit risks, you’ll see larger and larger returns on your investments. Prosper offers all sorts of data and advice columns to help you choose which rates to pursue. Because the Prosper forums and blogs include other online micro-financing people, you’ll be able to get tips and hints from the largest community of online microfinanciers in America. If you have a little extra money, Prosper peer to peer loaning is a better way to grow your nest egg than leaving it in your local bank. If someone refuses to pay back their loan, Prosper’s debt collection helpers help you retrieve the money you’ve spent.

That’s the beauty of microfinance or microloaning. When you’re a microfinancier at a place like Prosper, you have the background checks and information vetting handled by Prosper, so you can focus on using this data to decide whether to lend money. You focus more on micro-finance and less on paying your employees. You become a personal social lending corporation.

Loan Listings – Featured Members

Once you drop down the Prosper homepage, you’ll be able to see larger links for “loan listings”, “featured listings”, and “featured members”. Among the featured lists are categories like debt consolidation, relocation expenses, loan investment, home improvement loans, auto repairs, credit repairs, business use, business inventory funding, and so on. You’ll be able to hook up with creditors who specialize in certain fields. Because they know what the money is being used for, they’re going to be more likely to trust you.

You’ll also notice information like how many borrowers a person has funded (by percentage), when they were last on the site, how much they investor is willing to spend, what interest rate they’re charging, and what type of social lending member they fund (by rating). Members also can see personal feedback left for each of the investors or lenders, so you have some kind of idea the type of person you’re going to be dealing with. Everything you need to take out a smart loan is available.

Using Online Social Loans

In the end, social lending on Prosper is about people in need finding the dollars they desperately need. They’re making friends online and taking out loans with their new e-friends. No longer do you have to go hat-in-hand to an impersonal financial bureaucracy and ask them for a loan. No longer do you have to take a pay stub to a payday loan service that’s going to offer you one-sided lending. With Prosper, average Americans can borrow money from average Americans, the way it was meant to be.

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