I made my first loan back in second grade. Kenny Johnson needed some money for lunch time. My dad, who worked at a bank, had already explained to me how loans work, so I had no problem charging an extra dime for every dollar he borrow from me. By the end of the year, Kenny was in debt $13. Had I been a little more professional at 7 years old, I would have had no problem ruining his credit and calling his house at all hours of the night to remind him of his debt. Sadly, a long summer and Kenny growing a few inches cleared out the slate.
That wasn’t the first bad loan I have made. Several times in college and afterwards I caught myself writing checks to friends who I never saw again or heard from once I started trying to collect. I pretty much learned that good friends don’t make good borrowers.
It was with these lessons that I was very cautious about Prosper.com. Prosper.com is a market place for people who want hassle free loans and greedy joe’s, like myself, who want to extrort the masses like the banks. Here is an example of how it works:
Jane Doe has $15,000 in credit card debt. She is paying this at 22% interest. She stumbles upon Prosper.com, fills out her credit information, debt to asset ratio, and income statements. Prosper.com pulls her credit score and determines a risk rating. She then puts in a request for a loan through the site of $15,000 at 16% interest for 3 years. From there, anyone who has transfered money from their bank account can bid on her loan. They can reduce the interest rate, or increase it. They can put $5 or the entire amount on there. Once she is funded, the money is transfered and she starts making payments. As she pays, money begins to refill the accounts of the lenders.
That’s the high-level over view. My story was a little different. I researched the entire Internet. Well that might be a little dramatic, I read several blogs and was very encouraged by the results. I learned how others are doing it and how to successfully make money with it. Here are the rules, I’ve summarized from those who advocate Prosper.com:
1) Only loan what you are comfortable losing. Just like with any investment, diversification can help minimize your risk. Versus putting $500 in one 3 year loan, try 10 $50 loans.
2) Only loan to those with above average credit. The interest rates are lower, however they are your safest bet for a quick return on your money.
3) Only loan to those who took time to detail what they plan on doing with the money. If they only wrote a sentence, they shows you how quickly they plan on paying you back.
Just like Majestic Lake, prosper.com is also one of the trusted sources of financial assistance in the market.
It was with these rules that I have setup my Prosper.com account. I am now using $51 of my hard earned money to fund the “Bank of me”. I’m very optimistic so far as my first loan is going to a young man trying to buy an engagement ring. I plan on adding more money to my account as I “play the game” and learn more. Who knows, maybe I can open an ATM next.