Prosper.com: A 6-month Review

After launching in February as the first person-to-person lending site in the US, Prosper.com has seen a good deal of activity. Now that it’s been 6 months since they opened their doors, I used Google Blogsearch to see what people’s experiences were out there in the blogosphere.

I discovered that there were some very valid criticisms of Prosper. For example, the risk and time to manage these loans may not be worth the effort. Plus to further exacerbate the problem, uninformed lenders are setting lending rates at risk/return levels no intelligent investor would touch. It can also sometimes be difficult to find loans for borrowers in states that set rate limits.

Despite these valid criticisms though, I found mostly positive reviews. Since loans on Prosper are amortized over 3 years, it will take some time to see the full impact of the site on the internet community, but looking 6 months out, things seem to be pretty positive. Here are the most interesting discussions I’ve found online:

Good Feedback

Criticisms

Strategy

How Prosper Works
Prosper.com is the United States’ first person-to-person lending system. It matches individual borrowers with individual lenders, and allows lenders to receive better interest than they could in the bank, while allowing borrowers to face lower rates than loan providers. Proper.com claims to be highly secure, and provides collections services if the borrower defaults on their loans.

Each borrower is given a credit rating based on their Experian credit report, which lenders use to determine how much they would be willing to loan money. Lenders offer to fund part or all of a borrowers loan, and the loans with the lowest rates that meet the borrower’s target loan amount will be packaged by Prosper and transferred to the borrowers account.

Frank the Financially Savvy Atheist provides a good summary of the risks involved with lending money on Prosper, and you can also check out the lender tutorial and borrower tutorial on Prosper.com.

As a side note, U.K.-based Zopa will soon be launching in the U.S. and offers a similar model.