Peer to peer lending doesn’t always make the evening news. Maybe it’s because this concept doesn’t include any kind of greedy bankers who are embezzling money or kicking public trust into outer space.
Maybe we don’t hear more about this financial dynamic because it’s quietly moving forward with absolutely none of the brouhaha that comes with mainstream media. It’s consumers helping consumers. It’s peer to peer lending efforts with a common goal of helping others. It’s the new and more popular alternative to those frustrating traditional avenues of lending and investing.
And, we might add, it’s here to stay. In short, it cuts out the middle man. Investors invest in their fellow humans instead of big companies. Those fellow humans are finding their way to owning their own business, bypassing foreclosure, covering college, buying a car – if it’s a legitimate reason, there’s a good chance you can see an approval in peer to peer lending.
We were wondering how it works, so we checked in with one of the most visible peer to peer lending companies, Prosper. Here’s what we learned:
How it Works
If you’re borrower, you fill out the form on the website. You choose a dollar amount of what you hope to borrow, provide the purpose of the loan and then post the listing. Prosper does all of the verification process. It ensures you’re legally able to borrow money, it runs a credit check and then provides its own rating for the peer lenders. The initial process is easy and as it moves forward, would-be borrowers provide any further documentation as needed. We cover more about the privacy considerations below.
Once the loan is active, the investors can see it. The investor can select an amount to “bid” or invest in the borrower and once the loan amount has been reached, your loan is complete and you receive your money. Every personal loan made by Prosper is done so through WebBank, a Utah-chartered Industrial Bank, Member FDIC. Not only that, but all loans on the Prosper website are deemed personal loans that are unsecured, and fully amortized.
For investors, they enjoy impressive returns via the interest paid on the loans by the borrowers. It’s often competitive with bank interest, too. The borrowers make their monthly payments and those payments are divvied up between the investors. Some investors have several loans ongoing. They may invest $500 in a start up business, another $500 for a couple needing to make home repairs and they may invest $200 in a kid trying to cover his first semester in college. They decide who they invest in and how much.
We browsed through the open loans to see what the process looks like. One loan includes a borrower who’s looking for a $10,000 down payment for a car. So far, he’s 69% funded and will have a rate of 8.75% and monthly payments of $321.45. He chose to have his listing funded if it reached 70% or higher. He has 80 investors, with amounts between $500 down to $25. It’s likely his loan will fund this week.
More About Privacy
With the latest in expert fraud prevention and protection, Prosper members are able to move around within the site with no fears of identity theft or other fraudulent efforts. Prosper, along with its competition sites (we checked), have
extensive identity and fraud checks (that) use numerous internal and external databases to ensure that the people on our site are who they say they are.
There’s also a 100% identity theft guarantee on the Prosper site and if the lenders or investors become victims of delinquent loans from a borrower who’s illegally obtained the loans, Prosper takes full responsibility of that loan by buying it from the investors for whatever is owed on the loan. Investors are protected throughout the process.
All information is obtained in a truly magnificent, state of the art data center. Addresses – physical and email – are protected, PIN numbers are used, firewalls are the best in the industry and web filtering, anti-spam and antivirus suites are running all the time.
If you’ve ever used a peer to peer lending site, as either a borrower or investor, what were your experiences? We’d love to hear about them. Leave us a note or post your story on our Facebook page.