Prosper: Where people come together to borrow and lend money

With the banks reputations nose-diving daily and both borrowers and investors suffering as a consequence, Peer to Peer lending is a great way to cut them out of the equation altogether.

Prosper.com has been around for a while now and has funded personal loans worth $256 million. The simple principle of introducing people with money to invest to people who want to borrow gives both parties the opportunity to get much better rates than they would at the hands of the men in grey suits.

Creditworthy borrowers log-in, register and then complete the loan application section setting out the amount required and some detail about what the money will be used for. Loans are available from between $2,000 - $25,000. They are then credit checked and rated before the loan is listed on the site for investors to view. The interest rate set will be based on the Prosper.com rating.

Investors who register can then view the listings and decide which of the loan requests they are happy to support based on the risk rating and detail of the loans purpose. They can commit all of their funds to one case or perhaps more sensibly spread the risk by offering a proportion. Each loan stays on the listing for 14 days and borrowers and investors can track the level of funding pledged to each case.

Only if a loan receives full funding will it be granted, there is no capacity to advance whatever money has been pledged. This makes great commercial sense because if a lender originally stated they needed $10,000 to complete a project then they clearly won’t succeed with just $5,000. Unsuccessful loans can be re-listed but will need a completely new application.

It’s a free service to register both as a borrower or an investor with the obvious charges kicking in when a loan is granted. In addition to the interest rate borrowers will be pay a closing fee, deducted from the loan payment and based on their Prosper rating. Investors will pay a 1% loan servicing fee. Monthly repayments are taken directly from borrowers bank accounts.

The site contains comprehensive details on all aspects of the service and step by step instructions and guidance. And with over a million members already having used the service it’s clearly doing something right.

Conclusion
A good example of a Peer to Peer lending site where both lenders and borrowers benefit. Bankers should perhaps study the concept and re-learn how to do it properly.