Has anybody taken out a loan through prosper.com?

Question

I am looking to get a debt consolidation loan to payoff some debt. From what I hear this place will work with people who don't have good credit. I am wondering if somebody had first hand experience.

Answer 1

no but the NYT speaks well of them.

February 13, 2006
E-Commerce Report
It's Like Lending to a Friend, Except You'll Get Interest
By BOB TEDESCHI
THE Internet has become a great place to track down friends — or friends of friends — for advice or for a date. Now you can ask them for money, too. Prosper.com, a start-up company based in San Francisco, started operations last week, offering a mixed brew of eBay, Friendster and the local bank.

Prosper's users lend money to and borrow money from other people on the site at what the company says are better interest rates than those available through traditional financial institutions and without some of the risk that comes from typical person-to-person loans.

"We looked at eBay and said, 'Why can't we do this for money?' " said Chris Larsen, Prosper's chief executive.

Mr. Larsen, who founded and led E-Loan, an online lender that was bought last year for $300 million by Popular Inc., says Prosper could save borrowers and lenders money because it was a leaner operation than traditional financial institutions. He noted that consumers make, at most, about 4 percent on their savings accounts, which banks then lend to credit card customers at 14 percent or more.

"That's just a huge spread," Mr. Larsen said. "We think if you allow people to participate directly, it's a more efficient marketplace. People can make a better return on their deposits, which then become the source of credit to others."

On Prosper.com, prospective borrowers register with the site and allow the company to review their credit history. Then borrowers post a loan request of up to $25,000, along with an upper limit for the amount of interest they are willing to pay. Loans are not secured by collateral and are paid off over three years at a fixed rate, with no prepayment penalty.

Lenders essentially deposit their money with Prosper — which holds it in an interest-bearing account with Wells Fargo— and either review the loan requests individually or fill out a form permitting Prosper to allocate money to borrowers who meet certain criteria.

Chief among those criteria is the borrower's rating from the credit reporting bureau Experian, but borrowers can also join or create groups with defined interests or characteristics that, they hope, will make them more attractive to some lenders.

Among the groups on Prosper are aficionados of the Porsche 914 model, associates and employees of a Berkeley cafe and Vietnamese-American students. Borrowers, who typically post their loan requests and any group affiliation, along with a description of who they are and why they need the money, then wait a maximum of two weeks for lenders to bid in ever-lower interest increments for the right to issue the loan.

To help lenders minimize risk, Prosper permits them to finance just part of a given loan, so a typical lender may offer, say, $100 at 6.5 percent interest toward a loan to someone with excellent credit.

Once the bidding is complete, and if enough lenders bid enough money to finance the loan at a single rate acceptable to the borrower, Prosper transfers the money to the borrower's account and establishes a monthly repayment system that withdraws money from the borrower's checking account. (Should a borrower default, Prosper hires a collection company on the lender's behalf and alerts credit bureaus.)

Prosper makes money by charging borrowers 1 percent of the loan amount, while lenders pay 0.5 percent of the loan's balance each year.

The community aspect of the site, Mr. Larsen said, is an important component. "It's satisfying to place money in little bits with people who have stories, and in groups that you know and trust and want to support," he said. "And if you're part of a group, the theory is that you'll perform better as a borrower than if it was some disconnected credit card company."

Some prominent venture capital firms, including Accel Partners and Benchmark Capital, have rallied around the idea. Jim Breyer, an Accel partner who serves on the board of Wal-Mart Stores, is a Prosper director, as is Bob Kagle, a general partner at Benchmark, who also serves on eBay's board.

Mr. Larsen said the site's two-month testing period went well, and as of last week, Prosper had attracted lenders with a total of about $750,000 to lend.

Although Prosper is among the first to try this business in the United States, the idea has a track record abroad. Zopa.com, which operates in Britain, introduced a similar service in March (also with backing from Benchmark Capital) and has attracted more than 50,000 registered users, said Richard Duvall, Zopa's chief executive. At any given time, he said, about 15 percent of the users are either lending or borrowing money.

Mr. Duvall would not disclose the privately held company's revenues, but said he was "very pleased with our numbers" — so much so that he planned to start a site in the United States to compete with Prosper this year. Mr. Duvall said Zopa would also soon let users affiliate in groups, as Prosper does.

According to Asaf Buchner, a financial services analyst with the Internet consultancy Jupiter Research, that component could be critical to these sites becoming profitable.

Mr. Buchner notes that Prosper's group leaders receive a commission on the group's lending and borrowing activities, which they sometimes share among the group.

"If the sites are able to recruit strong group leaders with strong affiliations, they shift the marketing burden to those people, who have the incentive to go after others to become part of the group," Mr. Buchner said.

The group approach enticed at least one of Prosper's lenders, Stephen Russell, who registered with the site during its testing phase, and who is the brother of a Prosper engineer. Mr. Russell, the chief executive of a San Francisco technology company, 3VR Security, has put up $25,000 to invest on the site. He has also started a group to lend money to people affiliated with the Climb High Foundation, which trains women in tourist destinations to become climbing and trekking guides.

"I'm not just optimizing the rate of return on my assets," Mr. Russell said. "It's also a way to facilitate lending that'll help women in developing countries. That takes the lending and borrowing process one step further."