I recently posted two entries (1, 2) with experiences from people who loaned money through Prosper, the person-to-person lending service. “But where are the reviews from borrowers?” some of you asked. Tricia at Blogging Away Debt has borrowed money from Prosper. Here’s her story.
When I first heard about people-to-people lending through Prosper.com last year, a light bulb went off in my head. Would everyday people be willing to lend me money so I could lower the interest rate on my credit card debt?
After some consideration, I signed up. It was a fairly simple to provide personal information via the Prosper website, and I did not have to give any proof of my income at this time. (Please note I signed up in May of 2006, so things may have changed since then). I was given a credit grade, and potential lenders were able to see a snapshot of my credit history, including any
delinquencies or non-current credit items. My credit grade was an A, and I didn’t have any negatives within my credit history. Unfortunately, I had a high debt-to-income ratio (24%), which I knew would deter some lenders.
The next step was to decide whether to join a group. Groups at Prosper are, in theory, there to help build trust within the Prosper community. Every group has a group leader, and sometimes they assist you with writing your loan request. They can also provide something called vetting. Vetting occurs when the group leader takes a look at records from the borrower to determine that the borrower is truthful. As payment for their “work”, group leaders sometimes get group rewards that are really an extra interest rate percentage that the borrower pays on their loan. Not all groups are not created equal; some group leaders “work” harder for the borrower. Because my goal was to obtain the lowest interest rate possible, I decided to not join a group.
Next I created a listing. I was paying 13% to my credit card company on a balance of $3,500. Because I didn’t want a larger loan than I needed, I asked for $3,500. I began by asking for an interest rate of 12%. My rationale was that if even I received the loan at 12%, it was a debt that had a set amount per month to pay and a fixed payback period of three years (although I can pay it back earlier at any time with no pre-payment penalty).
As you may have noticed, I started by asking for a 12% interest rate. This is the beauty of Prosper. Lenders can bid your interest rate down lower and lower by outbidding other lenders. They are competing against each other lenders to fund your loan. However, if a borrower needs the funds quickly and they are not interested in a lower interest rate, they can have their loan automatically funded. Their loan listing will end immediately after the loan is funded. Again, I wanted the lowest interest rate possible so I waited the full 7 days for my listing to end.
It was fascinating to watch bidders with my loan. I actually received two bids for the full amount of my loan request. The first one was outbid. The second one ended up funding a large portion of my loan. When it all over, I had an interest rate of 9.9%, and 13 lenders in total funding my loan. I now have 13 people that want me to succeed because they have a stake in my debt reduction progress. In fact, one of my lenders is familiar with the area where I live and he suggested a restaurant that I should visit once our debt is paid off (to celebrate). That interaction is something that you cannot get with dealing with a credit card company.
My Prosper loan was what I needed to get my credit card debt under a 9.9% interest rate. It was the last piece to my debt consolidation puzzle. I have no regrets about my experience, although in hindsight I could do a few things differently to try to obtain a lower rate.
But as they say: you live, you learn, and you blog about it!