Use Prosper.com Loan To Get Lower, Fixed, Interest Rate

Blogging Away Debt wrote about the 7 things she did recently to cut her finance charges from $400/month to zero, and one interesting one was using a loan from peer-to-peer lending site Prosper.com to get a break on interest rates:

I decided to give it a shot to try to reduce our interest rates. It worked. Thirteen lenders bid on my $3,500 loan request and they reduced my interest rate from 13% to 9.9%. Another note about Prosper loans – they have a fixed interest rate! No more worrying about that interest rate magically increasing.

See, she used her Prosper loan to pay offer her credit card, swapping her interest rate for a lower, locked-in one. This can be a good tactic for the indebted to use, especially since credit card companies have become much more reluctant to reduce interest rates (and, in fact, for some time, many have been boosting interest rates on perfectly good accounts).

Seven Things We Did to Slash Our Finance Charges from $400/month to $0/month [Blogging Away Debt]
Prosper.com [Official Site]
PREVIOUSLY: Make And Take Person To Person Loans With Prosper

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  1. Bladefist says:

    Prosper has been around a long time. I’ve read some great reviews, and some horrifying reviews. In the past (as in, old data) there was some risk if you are a lender. At the end of the day, if someone didnt want to pay up, you were screwed. Read all FAQs and some reviews online before you go in as a lender

  2. Anonymous says:

    Anyone want to read the paper I wrote on Prosper for my Financial Institutions course? I got an A on it.

  3. SimonHova says:

    I’m a big fan of Prosper, though, like many others, I have been burned by fraudulent loans. All this is moot, however, as you have the bad timing of promoting Prosper during their “dark period,” they went to apply for some waivers from the government and they had to temporarily shut down their operations for a few months while they are waiting for their application to be approved.

    It’s still too early to say if they will emerge out the other side, and if so, in what condition, but I think that this article probably would have been better held until they came out.

  4. JustThatGuy3 says:

    Prosper sounds great from a borrower’s point of view, but I can’t really see why anyone would want to lend through it. Why would I want to loan the OP money at 10% when credit card companies, with diversified portfolios, strong credit scoring models, and extensive collection infrastructures are asking 13.5%? Seems to me that the lenders there are very exposed to the winner’s curse.

  5. hewhoroams says:

    Well i would think from the lender POV, that I can either get a safe 4% return from standard investment, or help someone and get an 8%+ return on the same money.

    Does anyone have any experience in the lending department of prosper? Are you protected from deadbeats?

  6. Shawn says:

    I’ve been a lender on Prosper for about a year now. We’re not talking big bucks here, but I put in $50 a paycheck for a while and now just keep that money on rotation as it is paid back. I actually do the same thing with Kiva. Anyways, the point is that in my experience of funding high risk/high rate loans I see about a 35-40% default rate on loans, but I still make a good profit. Folks funding lower risk loans likely see a much lower default rate and obviously lower interest rates also. Prosper, like pretty much everything financial, is a classic risk vs reward scenario. I get a kick out of it and it has my money making money so I’m a fan.

    • Shawn says:

      I should add, to answer some questions above, that there is indeed an automated collections agency escalation. I haven’t really seen collections milk any of my default loan funds back yet, but the system is in place and automatic.

  7. zarex42 says:

    Lending is not recommended; Prosper has a very poor default record, and in my opinion does not do nearly enough to collect on bad debts. I’ve lost a bunch through them myself. People can screw you easily. Stay away!

    • howie_in_az says:

      @zarex42: What does Prosper actually do if someone defaults on a loan? Do they just email the lenders and say sorry? Do they send a collections agency after the borrower? How much do lenders get to know about the borrowers? Personally-identifiable information or just generics like state, income level, and FICO score?

  8. Anonymous says:

    Note that the site currently says they’re not accepting new lender registrations or new commitments from lenders, and you can’t post new loan listings on their site:
    http://www.prosper.com/help/topics/lender-quiet_period.aspx

  9. BeeBoo says:

    Did anybody even look at the Prosper.com website before writing or posting this article? They are on hold on new loans or lenders for an indefinite period for a public offering.

  10. mike says:

    I’m a small loaner on Prosper. I tried to apply for an account. Apparently my credit score was so high, that they referred me to a credit union, saying that prosper wasn’t the best place for me.

    Since then, I’ve been wary on the people I give loans to.

  11. Snarkysnake says:

    Yes, Prosper is kinda in limbo right now and may not be back as concieved. That said…

    Remember a little obscure company called Ebay ? Remember how they started up as a darn good idea that got hijacked by :

    1) Crooks ,scam artists and third world thieves.

    2) The accountants.

    I see Prosper as somewhat the same thing. Great in concept , but really prone to abuse. Predatory borrowers (as well as identity thieves) could overwhelm the honest or naieve people when they start passing their secrets around.Can Prosper enforce these arrangements between borrowers ? To go back to the Ebay story, one thing that is killing their core business is taking a “see no evil,hear no evil ” attitude toward bad sellers and scamming buyers.As long as the ever increasing fees are paid, they just look the other way.
    I like Posper in theory,but these are things that concern me.

    Just my two cents…

  12. OggJoshua says:

    Can I use Prosper.com loans to build my credit?

    • Anonymous says:

      @OggJoshua: You sure can! Prosper reports to credit bureaus just like any other lender does. So, if you want, you can also use Prosper to destroy your credit.

    • Froggmann says:

      @OggJoshua: If you are at the bottom rung you can. It won’t rise fast but it will get your foot in the door. Due to my prosper loan I finally started getting CC offers that made some sense again and took one up. Since then my score has gone up over 200 points. But like everything else if you can’t afford it, don’t get it.

  13. johnfrombrooklyn says:

    No offense but you’re touting a company that is “on hold” right now; is not taking new loans; just admitted that a huge % of loans through Prosper will never be repaid; and is rumored (note: rumors) to perhaps be going out of business. If you want the skinny visit prosper.org which is a forum for current prosper lenders. Bottom line in my experience – people that need loans from Prosper can’t get them anywhere else. And those aren’t the people that are good debtors.

  14. cottiescot says:

    okay I just checked out prosper.com and they are not accepting loan apps at this time. I was redirected to another site..

  15. TWSS says:

    I just heard about this on NPR, actually. Prosper is closed to new lenders, has anyone used LendingClub.com or Kiva.org as lenders?

    • Shawn says:

      @TWSS: I use Kiva pretty regularly, but it isn’t really the same thing. Kiva is a non-profit for struggling entrepreneurs in developing countries. So you are giving zero interest loans to help people help themselves. Instead of profiteering off American credit greed on Prosper :)

  16. sleze69 says:

    Argh! No mortgage refinance options.

  17. kwsventures says:

    Why would a prosper.com lender give a loan for credit card debt? Sounds like a default ready to happen.

  18. Chantillian says:

    Only 2/3rds of the Prosper loans made 2 years ago (Nov ’06) are current.

    ^^^^ johnfrombrooklyn means prospers.org, not prosper.org.

    • Anonymous says:

      I took out a Prosper loan a year or so ago to pay down debt and help repair some credit issues. The interest rate wasn’t that great, but the loan itself is a step in the right direction. If investors who got in on loans are being screwed not receiving payment, that may be an issue with Propser then and not the borrowers because people who take loans are required to authorize automatic monthly payments. I haven’t missed a payment, but I’m sure there might be people out there who’ve taken loans and figured out how to game the system by closing accounts or something. Also, Prosper is no longer accepting requests for new loans for the time being.

  19. cricketsoda says:

    I have done a few loans, all AA rated, and haven’t had any problems with them. This dark period though sounds like bad news. I hope the money I lent is OK!

  20. Hoss says:

    Prosper stopped allowing new loans a few weeks ago. They claim to be looking for SEC approval on something. They at the same time wrote off a ton of loans that were more than 4 months outstanding. Beware.

  21. Anonymous says:

    This would have been a great post about… eh… 2 years ago. Now, the space is murky because of Prosper’s high default rates, being “on hold” and potentially never coming back.

    The bright spot seems to be on Lending Club (approved by the SEC), and Kiva (doing good by helping people in third world countries). I’m sticking with these 2 for now.

  22. frodo_35 says:

    This sounds like it could be a good idea at the community level. You could also know the people and meet them face to face. Think about it 10 people that want to help their neighbors and make a little money. The community shame could be a big factor in them paying back.

    • JustThatGuy3 says:

      @frodo_35:

      That (community shame) is a key portion of the business model of many 3rd world microlenders like Grameen. In many cases, other people in your village are, in essence, jointly liable for your loan, so you’re ripping off your neighbors if you don’t pay up.

  23. Anonymous says:

    I always recommend tapping into your social network, especially family and friends, to get money and resources to start a business.

    40billion.com is a site that helps entrepreneurs raise money for their small businesses through friends and family, rather than through traditional financial institutions. It is the first friends-and-family funding network for entrepreneurs. Using the Internet-based service, entrepreneurs connect with their social networks – friends, family, friends of family, colleagues, and others – to raise capital by requesting loans and contributions, and entrepreneurs can share their fundraising pages on MySpace and Facebook too. 40billion.com’s scalable platform facilitates the funding requests and generates customized loan documents to make it easier for an entrepreneur to manage many investors (lenders and donors), who can provide $50 to $10,000 each.