The concept of lending is being redefined by a new website, Prosper.com. The premise is simple: they pair individuals with money to invest with those who need to borrow.Aware that banks and credit unions do not always take each individual’s unique circumstances or attempts at financial rebirth into consideration when reviewing loan applications, Prosper.com allows everyone to create a personal profile, including photos and personal statement, and a loan listing. The website hosts a loan calculator enabling potential borrowers to see the change in their monthly payments based on whether or not they are group members, credit grade, and interest rate so those considering borrowing can see what their payments will be.Loan listings consist of a concise proposal, including what the money will be used for, the total amount needed, $1,000 to $25,000, and the highest interest rate they are willing to pay. Listings can be viewed by everyone who accesses the website. When placing the ad, borrowers must agree to allow Prosper.com to pull their credit reports. Based on credit worthiness a potential borrower is assigned a letter grade (i.e. AA, A, B, C, D, E, High Risk and No Credit) and debt ratio is calculated. Potential lenders review the listings and borrower profiles. If interested in loaning money to this person, lenders place a bid to lend all or a portion of the money requested, as little as $50, and the interest rate they want in return for their money. Once enough bids have been entered to fully fund the loan, all of the interest rates and amounts are consolidated into one loan paid to the borrower, minus the $50 loan closing fee. Listings that expire before the loan is fully funded the listing can be edited and reposted.
Loan interest rates are fixed for the duration of the loan and all loans are structured for three years of payment. Payments are automatically withdrawn from the borrower’s bank account. In an attempt to cultivate an environment that encourages and supports borrowers into successfully completing the loan term, Prosper.com hosts a group system. Borrowers who join groups receive marginally better interest rates that than who do not. Groups are divided into subcategories such as alumni associations, professions and hobbies. With more than 3,300 groups, everyone can fit in somewhere. All group members can have their own future interest rates affected, both positively and negatively, when other members default. Group leaders keep in contact with members to encourage consistent repayment.Prosper.com posts loan performance rates on their website so that people interested in lending can consider their risks. People who need money are always going to have to pay more in interest than they would like and people who invest money are always going to face risk. Prosper.com gives those in need a second chance they may not otherwise receive while giving anyone with a few bucks to lend the opportunity to help a total stranger. No bank can come close to that rate of return.