Prosper.com is a peer-to-peer loan website operated by Prosper Loans Marketplace, Inc. Are they all they are cracked up to be, or is the website a scam?
Their business model of connecting small investors with people in need of microloans has endured challenges from the U.S. Securities and Exchange Commission and survived well past the original predictions of its demise issued in 2006, but it is worth a closer look.
Prosper.com is attractive to borrowers because it offers loans at lower fixed-rates than banks. Meanwhile, it allows lenders to receive the “risk premium” returns that come from making higher-interest-rate loans to riskier borrowers.
The loans are unsecured 3-year loans that are fully amortized, and prosper.com’s agreement with the SEC, has given its investments the legitimacy that comes from following the rules established for securities trading.
Prosper.com -The Good:
Like any other investment vehicle, you should never commit more money than you can afford to lose. However, the small dollar amounts involved in prosper.com loans make it easy for anyone to invest, regardless of how little cash they have to spare.
Making loans through prosper.com offers the intangible benefit of positively affecting someone’s life. We have all been in a tight spot where an extra couple of bucks could mean the difference between survival and disaster, and prosper.com throws a lifeline to people who have nowhere else to go. Assuming that the borrowers are telling the truth.
Prosper.com takes reasonable safeguards to verify the identity of its loan recipients, but it is still a challenge to separate the good credit risks from the bad. In August 2008, reported delinquency problems plagued 18.5% of the loans it had made since its inception, while more than 35% of the loans that they made in February 2007 ended up in some form of delinquency.
Prosper.com itself acknowledged this in July 2009, but they claim that they have turned the corner, with delinquency activity peaking at the end of 2008.
Prosper.com also has a B+ rating with the Better Business Bureau at the time of this writing. Here is the link to see the company’s profile for any updates: Prosper.com BBB Profile. Of the complaints received by the BBB, the majority of them were customer service issues, which is not necessarily a good thing but all of the complaints seem to have been answered and resolved relatively quickly which is a great sign for customers with issues.
Prosper.com-The Final Verdict:
Prosper.com is an attractive concept with an execution that is deeply flawed. There are plenty of deserving people out there who just need a break to get back on their feet, but more people out there are willing to game the system for quick cash.
Trying to separate the “mislabeled” credit risks (that will pay back their loan) from the genuine risks (that are more likely to walk) is too much of a challenge for the tools provided by prosper.com.
Although the SEC investigation has established that prosper.com is a legal operation, so are casinos and other gambling establishments. However, the casinos are also willing to accept small dollar transactions and are much faster at letting you know whether you will ever see your money again.