-
Are Prosper Loans a Scam?
An interesting trend in finance these days is the rise of peer to peer lending, in which borrowers get a loan from individual investors rather than from a bank. In theory, everybody wins: borrowers get a loan at a lower rate than the bank would offer (or get a loan that the bank wouldn’t offer at all), investors make a higher rate of return than they would otherwise, and of course, the facilitator takes a cut. These sites have been around for years – I originally joined prosper.com, perhaps the most prominent, over four years ago – but have been in the news lately, and have been featured in the Wall Street Journal.
So are Prosper loans a scam, and if not, how do they work?
At the time that I joined, Prosper loans were funded through an auction format. As a lender, you would find a loan that you were interested in funding, then bid both the maximum amount you would lend and the minimum interest rate that you would accept. Interest rates started at the buyer’s maximum; once the loan was fully funded, lenders would automatically compete against each other in a sort of reverse Ebay, such that the entire loan was funded at the lowest interest rate that would still bring in sufficient funds.
In order to get funding, borrowers generally needed to write a detailed post explaining why they needed the money and how they intended to pay it off; Prosper also did a credit check and ranked borrowers on their creditworthiness. Many people participated on the site as both borrowers and lenders, taking advantage of their good credit ratings to borrow money and then lending it out again at higher rates.
So how well did it work? Well, I invested $1,000 into the site in 2007, in half a dozen loans. At the time, all loans were for a three year period. I reinvested the payments for my loans (which had an average interest rate of around 15%) back into the site, so pretty soon I’d lent out quite a bit more than my initial investment.
Unfortunately, this was in 2007, and towards the end of that year, the US economy fell into a recession and people started defaulting on their loans. By the time I pulled all my money out, half of my loans had defaulted and I got back only about $750 of that original $1000.
So are Prosper loans a scam? I’d say no; the site seems to work as promised, and I got my money back right away whenever I cashed out. I lost money, but I also knew and accepted the risks involved, and until the start of the recession I had no loans in default. If a loan isn’t paid back, the company turns it over to a private collector, but the percentage successfully collected tends to be low.
Prosper itself is still around, but with a slightly modified business model; the company was rumored to be facing bankruptcy last year, but obtained more capital and resumed lending. They now claim over a million members and nearly a quarter billion dollars in loans.
Do I recommend the site? It’s hard to say. A lot of people are here because they can’t get credit elsewhere, and sometimes that’s for good reason. Some people might like knowing that they’re providing credit to those who otherwise wouldn’t be able to get it; however, you can also get that from microlending sites such as Kiva that are strictly charitable (they return your money, assuming it’s repaid – which the microloans almost always are – but without interest). Prosper, on the other hand, has a significantly higher loss ratio than traditional banks. Still, it provides a nice way to diversify, and the site claims actual returns averaging 10.4%. I wouldn’t put a huge amount of money into it, but if nothing else, it can be an interesting place to stash a small part of your portfolio.
-
Unsecured Tenant Loans
Tenant loans are loans designed for people who don’t own property; these are generally unsecured loans with a higher interest rate than homeowner loans such as mortgage loans. However, they tend to have lower interest rates than credit cards, which can make them attractive for paying off credit card debt. Tenant loans are a form of personal loan; the term is mostly used in the United Kingdom.
As with any personal loan, a tenant loan will come with an agreement that specifies the interest rate, payment schedule (including payment amounts) and any conditions and late fees that apply to the loan. Like a mortgage loan, a tenant loan can sometimes take over twenty years to repay.
As tenant loans are often sought by desperate people, there are naturally a number of scammers to be found online; before applying for a loan from any business other than a well known bank, it’s worth doing some research to make sure they actually are a legitimate business. You’ll also want to check out the business’s privacy policy to ensure that they’re not soliciting loan applications as a way of collection personal information.
-
Loans for the unemployed
There’s no doubt about it; being unemployed sucks. Obviously, you have no money coming in. It’s not uncommon to suffer from feelings of depression and loss of identity. To make matters worse, if you find yourself in need of money, it’s impossible to borrow because nobody wants to lend money to someone without a job!
If you’re unemployed and need to borrow money, there are options. Unfortunately, most of them are bad. Those companies that advertise loans for unemployed people know you’re desperate, and they take advantage of that. If you absolutely must have a loan, what do you need to watch out for?
-
Guarantor Loans
A guarantor loan is one in which the person taking out a loan has someone else guarantee the loan for them; that is, that person is also responsible for the loan. Why would you want to do this?
If you’re not able to get a loan on your own, due to either bad credit or no credit history, a guarantor loan allows you to get the credit you need as it will be based on someone else’s credit rating. Even if you could get the loan on your own, this may allow you to receive a better interest rate as you’re lowering the bank’s risk. Then, because the loan is in your name, you can improve your own credit by making payments on time.
-
High Risk Personal Loans
Getting a loan is difficult enough in this economy, but when you have lousy credit, it’s even worse. Many legitimate banks won’t want to lend to you, seeing you as a bad risk, and borrowing from a loan shark can be taking a bad risk! Still, that doesn’t mean it isn’t possible to get a loan even with bad credit, but keep the following tips in mind.
First off, there are a number of places offering to help you get a loan regardless of your credit score. It goes without saying that you shouldn’t trust them, particularly if they charge a fee to apply. You are the customer – the lender expects to make money off of you. You might have to pay a loan origination fee when you get the money, but you should never pay a fee simply to apply for a loan.
-
Debt Consolidation Tips
Having a large number of bills come in every month can be overwhelming. Debt consolidation is a way to cut down on that, bundling everything into one large bill to keep things simple. Many companies also advertise that you can lower your monthly payment by consolidating your bills; while this is sometimes true, many factors must first be considered.
-
Low Cost Personal Loans
Here at Twenties Retirement, we advise people to avoid going into debt if at all possible; it’s always a lot easier to get in than it is to get out. Unfortunately, it’s not always possible. If you must borrow money, what is the best way? Read the rest of this entry »
-
Personal Loans from Barclays Bank: All About Barclays Personal Loans
The 25th largest company in the world, Barclays PLC is the largest financial services provider worldwide. It is the second largest bank in the UK and the world, with $3.7 trillion in assets. Barclays was in the news in the United States in 2008, when it acquired Lehman Brothers during the peak of the financial crisis.