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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!
You can read more from Tricia at Blogging Away Debt. (Were she just announced she’s expecting her second child — congrats, Tricia!) She also maintains a site called Quicken Head.
March 19th, 2007 at 6:43 am
I’m really fascinated by this concept. Do you think it will ever evolve into larger loans? For example, lots of real estate investors borrow hard money at 15-18%, plus a 3% origination fee, to repair a house. It’s expensive but worth it.
Somebody like Prosper could move in and completely change the industry. The only reason I can think of that they haven’t done it is these types of loans are secured by real estate, which might be a little harder for Prosper to facilitate. You would have to show people how to record a lien against a property.
March 19th, 2007 at 7:08 am
Hmmm… this got me curious enough to finally check out Prosper.com. Though I’m worried my credit score won’t qualify me as a borrower.
March 19th, 2007 at 8:13 am
That is pretty dang amazing.
It’s very communal, very us against them (the big lenders, credit cards, etc)
Utterly fascinating.
I would love to hear more from other borrowers.
March 19th, 2007 at 10:38 am
[...] Prosper.com Resources:What’s It like to BORROW Money with Prosper? - Account of borrowing [...]
March 19th, 2007 at 11:53 am
I am both a lender AND Borrower at Prosper. I think I have been a member at least a year now.
I took out a loan for my state Minimum ( $6,000) and it was filled rather fast. I offered a fairly generous ( but fair) rate for my B credit rating. The payment is debited monthly.
I am also a Group Leader.
I have only invested in 5 loans so far- all high risk- high rate. I do not invest any money I would actually miss. It might as well be lotto ticket or slot machine money ( or coffee or coca-cola or whatever your minor vice might be). Then I just revinvest all proceeds. No missed payments so far and I am at 25.99% overall.
March 19th, 2007 at 12:12 pm
Prosper is cool concept BUT lets wait to see how it and others play out over a economic cycle. Few folks miss their initial loan payments, its when conditions change that things get…um interesting…..
March 19th, 2007 at 12:51 pm
I am a Prosper lender and group leader. In some ways I have lost some of initial excitement.
What I have observed is the process is time consuming when you want to actively bid. You can use standing orders but I suspect that borrowers need to sharpen their deals before standing orders will hit the sweet spot in the curve (balance between risk and reward).
Many borrowers are naive. They come to Prosper after they have been turned down other places. They do not understand that lenders what to see a change in behavior before believing that they will do better than the credit score implies about their past.
I still am a member and still have money on loan (about 20 loans). I think it will take a bit longer to really take off.
John Corey
http://johncorey.wordpress.com - Real estate investing advice based on over 20 years of experience (multiple states and countries).
March 19th, 2007 at 1:37 pm
Hey, getting a Prosper account seems like a good way to get an estimation of you credit rating without having to pony up for your “credit score” number. I’ll have to try that.
March 19th, 2007 at 2:01 pm
Some of the rates cited above are very impressive, and I can certainly see why it would make sense to borrow on Prosper, however, as a lender, given the amount of control and security that is described (no proof of income level) it seems bizarre that people would lend any money.
It seems like the level of uncertainty involved is very high, and as such interest rates should be correspondingly very high. That being the case, my personal guess is that a lot of people are lending money without due consideration of the level of risk involved. It would be interesting to look at the default rates / delinquency rates and payment rates for Prosper.
Clearly there is something there, but from what I hear there are some bugs that still need to be ironed out.
March 19th, 2007 at 2:32 pm
How to lower your credit card interest rate with a loan from Prosper…
Personal finance blogger Tricia used previously-mentioned community loan service Prosper to pay off her credit card at a lower rate. The card she had charged a 13% interest rate, so she created a loan listing for 12% that potential lenders……
March 19th, 2007 at 3:28 pm
I recently borrowed $4,000 via prosper to max out my 2006 Roth IRA contributions, and I found it incredibly helpful. I got a 8.4% loan rate with my credit grade of A. Being as this is my last year of graduate studies, I will be able to pay off the loan quickly after I get a “real job” and I will win out in the long run with the Roth IRA contribution.
I can’t tell you how exciting it was to watch the rate being bid down from my initial asking rate of 9.5%.
March 19th, 2007 at 4:33 pm
@RonenV
I agree that many people who lend don’t completely realize the risk. In addition Prosper allows you to diversify by lending as little as $50 which makes you believe you reduce your risk while in fact you simply level it out.
March 19th, 2007 at 8:35 pm
Wow, this is an amazing article! I had read about prosper and micro-loans before, but they are almost always from the lender’s perspective. Seeing it from a borrower’s perspective is really neat! I can imagine how good it must feel to see the rate being bid down!
March 19th, 2007 at 9:01 pm
“I have no regrets about my experience, although in hindsight I could do a few things differently to try to obtain a lower rate.”
You failed to explain what you would have done differently. This is a very unhelpful conclusion to an entry. I want to know what I can do differently!
Thanks.
March 19th, 2007 at 9:09 pm
I am a Prosper borrow. I wanted to “stick my toe in the water” and requested a loan of $1,000 exactly one year ago. My rate is 6.95%. There is only one term : three years.
Later I discovered that you can only have one loan at a time, so I’ll have to sit down and do an estimate of when it’s feasible to pay off early and consolidate my outstanding credit card debt, which ranges from Zero to 17 percent.
What I like about Prosper is that it gives me a choice to manage my debt load : credit card companies or individual investors. I’d rather not have the debt, but given the choice, I’d rather give it to you.
March 20th, 2007 at 9:36 am
This crap kills me.
Tricia was only borrowing $3500 that she was planning to pay back over 3 years. Her goal was to lower her interest rate 1%. Instead, she lowered it 3%. So instead of paying $745.40 in interest over the three years she’ll be paying $559.78.
She can’t pay off $3500 in one year? Six months? If she paid it off in one year at 13%, her interest paid would be $251.32. Six months would cost $133.90.
A more aggressive debt payment budgeting is in order here, not monkeying with interest rates over long periods of time for paltry balances.
March 20th, 2007 at 11:14 am
@TPSReports:
Get your head out of the sand. Some people are already stretched too thin and simply can’t pay their debt off any more aggressively. Lowering their interest rates will allow them to pay their debt off more quickly at the same monthly payment. Besides, they don’t HAVE to take the entire three years to pay it off. Why not obtain a lower interest rate and THEN pay your loan off in only one year? You save even more money.
March 20th, 2007 at 10:18 pm
RonenV #9,
While I think there is considerable risk, I don’t think any lenders really go in without taking this into consideration.
All borrowers are vetted, credit scoring, DTI used,etc. I can see how many inquiries, deliquencies, public records,income,etc. I cna contat borrowers and ask questions. Many have to provide W2s and verify bank account, home ownership,etc. If anything I think Prosper is TOO conservative finalyzing loans. My friend had his loan funded and retracted because they would only go by the income on his 2005 taxes, when he was making more money in 2006. They can be pretty strict on documentation. They have started verifying addresses via postcard with codes,etc.
Also, the # 1 way to manage the risk, is of course, the Interest rate. I know an E or HR is going to have a higher rate of default. Therefore I either avoid them completely or charge an appropriate rate,etc. Even so, As I said above, I don’t invest any money there I can’t live without.
There is also the SOCIAL or even family-lending aspect. Maybe you want to make a loan to a friend or family member but you want it set up so there are real structured payments and consequences. Or you just want to help people out ( and hope they pay you back). Prosper seems a decent facilitator, IMHO.
Certainly I don’t expect to continue to earn 25% or to manage that on a large scale, long term. But so far I have managed to do it small-time, mostly for acquaintances or people I wanted to help. I DO think it is entirely reasonable to achieve results competitive with mutual funds and easily surpassing money market/savings,etc.
There are actually a few websites out there where people track Prosper and have made models to predict the defaults and actual returns. There is one that lists all Lenders with their loan amounts, returns, predicted risk adjusted %,etc.
As I said, I joined Prosper a year ago ( still not “long term” I know) and there have been many members and many websites following this stuff at least as long.
March 22nd, 2007 at 9:19 am
@ Toby - I apologize that I didn’t include what I could have done better. J.D. asked for an article, and I put together a very basic snapshot of my experience. I do go into greater detail on my blog and I probably should of had J.D. link directly to my Prosper category (I give tips in there).
@TPSReports - $3,500 may seem like a drop in the bucket to some, but not when you have over $37,000 in total credit card debt. I’ve paid off over $15,000 of our credit card debt in a year and our income was $48,000 last year. I am being very agressive, yet also being resourceful in attempting to lower all of our interest rates so more of our payments are going towards principal and not interest. Like I mentioned, the Prosper loan was a part of my debt reduction puzzle.
March 22nd, 2007 at 10:31 am
Snarla suggested using Prosper to check one’s credit score.
Two things.
Prosper does not return a credit score using the same or normal scale. Part of their agreement with Experian. They provide a letter grade the corresponds to a numerical range.
They are also only showing what one bureau out of three has to say about you.
Second, you can obtain your credit score from all the bureaus each year for no charge. There is a website but I do not have the link. Part of the regulations for individuals to be able to verify the accuracy without having to pay to get access.
John Corey
- Real estate investor, 20+ years - multiple states and countries. Check my blog -
http://johncorey.wordpress.com/ - advice for real estate investors.
March 22nd, 2007 at 12:10 pm
[...] If you are interested, you can take a peek here. [...]
March 22nd, 2007 at 4:36 pm
At first blush, I too was interested in the Prosper concept. However, after spending some time in their forums and reading about others experiences, I have gotten the impression that Prosper is basically a place to gamble.
Generally, my perceptions are:
Prosper is the gigantic winner:
* “middle man” - all profit, no risk
The borrowers undoubtedly make out great:
* lower interest rates
* pool of lenders to turn to when traditional institutions have balked
* no pre-payment penalty
The lenders play craps:
* Pool of borrowers is likely skewed versus general marketplace (ie - historical default rates may not apply)
* Fees and taxes bite into effective rate
* Not likely able to truly diversify portfolio to spread risk
I still like the concept, but will let someone else go through the “growing pains” of being a lender.
Anyway, the money isn’t being made in being the lender, it’s being the BROKER (Prosper). Now if someone wants to talk about setting up a similar business model to compete with them, I’m definitely interested.
March 23rd, 2007 at 8:02 pm
My sister’s a resident surgeon at Harvard, seriously struggling with CC debt. Residents don’t make anything, so I’ve passed this on to her with the hope she can get a better rate on her loans.
March 31st, 2007 at 8:01 am
[...] 19th: What’s it like to borrow money from Prosper? (a guest post from [...]
March 31st, 2007 at 7:42 pm
For those of you curious about how Prosper lenders are doing you can check out http://www.lendingstats.com You can see Return On Investment percentages, default rates, length of loans (so you can see how investers are doing over the “longer” term) etc.
April 29th, 2007 at 10:43 pm
Link Dump…
Totally slammed, links piling up, so here are a bunch of random lins that have been sitting in my to-do pile for a while:Want to pay off a credit card?……
June 8th, 2007 at 6:57 am
[...] are trying to pay off, you might be able to get a lower interest rate at Prosper.com. This is what Tricia from Blogging Away Debt found. Instead of 13% to a faceless credit card company, she’s now paying 9.9% to a bunch of [...]
June 15th, 2007 at 7:00 am
[...] Borrowing on Prosper - I mentioned this recently, but there are some circumstances where you can’t lose as a borrower. One great way is to lower credit card debt as Tricia from Blogging Away Debt found out. [...]
September 30th, 2007 at 9:53 pm
[...] ***P/S - Just so you know, not only can you lend, at PROSPER and ZOPA if you want, you can also borrow money. You can read how Tricia at Blogging Away Debt has borrowed money from Prosper. [...]
October 5th, 2007 at 11:31 am
Just signed up with Prosper - I have a D credit rating. Hoping to get $5000.00 loan!
Can anyone out there realistically tell me if I have a chance at all with Prosper?
If anyone has been in a similar situation - let me know your advice or insight!!
October 8th, 2007 at 8:45 am
hello how can i get $540 us to borrow and pays for my visa and work permit so i can get to start work and then i will pay it back
October 8th, 2007 at 8:50 am
how can i get a loan of $540 u s to pay the visa station in Canada so i can get my work and visa permit please can some one help me out here
January 15th, 2008 at 5:02 am
[...] Network with other Bloggers - I didn’t do this just for Prosper, but I wanted to learn from people. One friend of mine is a powerful blogging source, who has had millions of visitors to his blog. I noticed that he had written about Prosper, yet didn’t join the referral program. I politely asked him if I could pay him to add my affiliate code to the link in his article. He was kind enough to do it for free. This is one of the many reasons why he’ll easily have 5 million people visit his blog this year: What’s It Like to BORROW Money with Prosper? [...]