Prosper: The Loans Marketplace

Peer-to-peer lending is becoming a more popular form of financing in the current economy as banks are tightening their policies and it becomes increasingly difficult for those with less than perfect credit scores to get a loan. One company helping borrowers and lenders come together and help each other is Prosper: The Loans Marketplace.

Since 2006, Prosper.com has helped bring 900,000 members together to fund $185,000,000 in loans. For borrowers, getting a loan is much easier than with a bank, they are not turned away because of a low credit score. Lenders, in turn, are able to earn a considerably higher rate of return on their funds than they would in main-stream investments. On average a Prosper.com loan boasts a 9.52% return after estimated losses are considered. As Chris Larsen, CEO and Co-founder of Prosper, says "Prosper is a new way of banking. Instead of working with a bank where they offer depositors around 1% and then turn around and lend that same money out to borrowers for much higher rates, Prosper lets lenders see larger returns on their investments and offer their peers a lower rate as well."

The system which allows for this "prosperity" is, in fact, quite simple. When a borrower wants a loan, they enter their information and a description of what they want the loan for and why they are a good candidate. Then lenders are able to review these profiles and decide whether or not they would like to help fund the loan. Once the lender bidding comes to a close, the note is issued and all of the lenders who helped to contribute to the loan have their funds automatically transferred to the borrower. Prosper manages everything, collecting and distributing the monthly payments from borrowers to lenders.

Lenders can choose from a couple different ways to invest, either using portfolio plans or bidding on individual loans. With a portfolio plan, the lender can set different criteria for portions of their money and the bids will be made automatically. Or, if they want to select based on each individual borrowers criteria and/or descriptions, they can view individual listing summaries and bid one at a time to get exactly the loans they want. Lenders are free to choose which loans they would like to fund based off of whatever criteria they want, Prosper "allows people to decide who to grant credit to and at what price, not dictated by banks, it is a pure economic democracy" says Larsen.

Prosper provides lenders with an estimated loss rate based on the borrower's credit history and information from other Prosper loans to give an idea of how likely the borrower is to make all of their payments. Taking these rates into consideration will help lenders to know what to expect when choosing their investments and be able to avoid the loans which they feel are too risky. In the event that a borrower does not pay, Prosper will handle the collections process: assessing late fees and working with collection agencies, to keep lenders' losses at a minimum and eliminate work for lenders.

With all of the services offered by Prosper.com it is no wonder that they continue to grow and are becoming a top choice for investors and those in need of funding alike. As Larsen states, "It's a fun business and we are just beginning."

Larsen, Chris. Telephone interview. 15 Dec. 2009.

Personal Loans and Online Investing | Peer-to-Peer Lending - Prosper. Web. 12 Dec. 2009. .