Loan Requests from People with Good Credit Increase at Prosper

[Oct 9, 2009.]

 

More folks with strong credit scores have turned to social lending network Prosper.com for personal loans. Apparently many creditworthy folks are moving beyond traditional loans from banks that have tightened lending standards.

Personal Loans from Peers

"With credit card companies hiking rates while at the same time reducing credit limits, people with great credit are looking for an alternative way to get rid of their credit debt and finance their small businesses," Chris Larsen, CEO and co-founder of Prosper, said in a statement. "The result of the 'too big to fail' institutions turning their backs on consumer and small business borrowers is that individual investors are finding peer-to-peer lending to be an attractive new asset class that enables them to do well while doing good."

Borrowers' Credit Scores Rise

The average credit score for borrowers who received loans on Prosper was 714. The average score of folks who requested a personal loan rose to 700 from 620 last year. Many traditional lenders require credit scores of at least 720 for the best interest rates.

Here are some things to consider before applying for unsecured personal loans through Prosper:

—The unsecured personal loans have a fixed rate of 7.5% or higher. For instance, a three-year, fully amortized loan at 7.5% will result in monthly payments of $30.97 per $1,000 borrowed.

—Monthly loan payments are deducted from the borrower's bank account.

—There is no penalty for paying off loans early.

—Unsecured personal loans can total $1,000 to $25,000.

Social lending networks have gained more users during this recession. Not only are borrowers finding a solution to securing loans, but some folks are finding success as lenders. Lenders can be individuals or institutions, and they may choose to invest in diversified plans or use a portfolio plan. 

People thinking about becoming a lender on Prosper should keep in mind that their investments are not insured by the Federal Deposit Insurance Corp, and there is a risk that a borrower may default. However, Prosper does provide detailed historical information on borrowers, as well as credit scores and debt-to-income ratio data. This helps lenders feel well informed about where their funds are going.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.