I was checking out the online loan auction site, Prosper, and noticed how many of the potential borrowers were seeking loans to "get out of debt." That struck me as quite the paradox. Oxymoron? Many of the postings were seeking loans to pay off high-interest credit card debt, but because of their credit rating, were still in the 20+% interest range.
Reading some of the loan requests is a true motivator for maintaining a healthy emergency fund, diligently saving, and spending carefully. Lenders bid on providing the loans. I don't know what I think about this whole thing yet but it's oddly mesmerizing.
On the site today were 711 listings found with credit grade at least HR (high risk) including borrowers with no credit including high debt/income (>20%). Some examples of borrower postings (no edits from me):
"1. Please help. I have 2 tax leins on my credit report thats driving down my scores. I need to take care of this. I am on a payment plan with IRS but the interest rate and penalty rate are horrible. Please help me get this burden off my back. Help me get my good credit back.
2. I'm very excited about the possibilities offered by this great website and the Borrowers allowing this idea work. In the last 8 months, I not only have gotten married but also started a real estate business that is just starting to move forward. These events were both a blessing but also caused me to accumulate a large amount of debt on credit cards that have unfavorable interest rates. I am very fortunate to have a steady day job which pays great, and is also helpful in relieving this uncomfortable situation. I take this plea for a loan very seriously while realizing that it is my credit life preserver. My goal is to pay off all my high interest credit cards with the loans provided by your services. Once my loan is approved, I look forward to aggressively paying back the loan while getting my credit score back on track.
3. Taylor, my 7 month old daughter, is asking you to Lend me some money to fix up my rental property. The tenant failed to pay rent for 6 months, stole the refridgerator, and trashed the place.I am married, live in Orange County, CA, and work in the real estate and mortgage industry. I am looking for some quick money to fix my property so I can put it on the market for sale.Here are repairs needed.-New Interior Paint-New Carpet and Tile for floors-Exterior LandscapingMy credit score is a 625. In the mortgage and real estate world, this 625 is sufficient to obtain 100% financing for the purchase of a new home. My score has dropped 50 points becuase I used a BankAmerica credit card, and recently purchased a new car and vaction home. I have NO late payments, and NO Bankruptcies or other defaults on any loans.My reason for Prosper is simple.I need money now.I dont want to use my own money to repair the property.I am trying out the system so I might refer friends, family, and colleagues in the future.The rate is not really an issue as the difference in payment between 10% and 25% is only 150 bucks a month."
From the Prosper site:
How it Works - Borrowing money through Prosper is fast and easy, and because you're borrowing from people, the rates may be lower than you'd expect!
1. Register with Prosper
Registration is quick and easy. And free!
2. Join a Group
Build lender trust by joining a trusted group.
3. Create a Loan Listing
Say how much you want to borrow, and what your maximum interest rate is.
4. Watch the Bidding
Lenders start bidding immediately - watch the funding go up and the interest rate come down!
5. You Win!
If your terms are met, your loan will be funded directly to your bank account.
6. Easy monthly payments
Your monthly loan payments are withdrawn automatically from your bank account.