Prosper.com is one of those platforms where borrowers meet lenders. Over the last few years, several such concepts have captured the imagination of many and some sites have even become a phenomenon in their own right.
Think of Kickstarter and the likes and you would know how successful or effective they can be, if done right.
There are shortcomings of sites like Kickstarter because investors often don’t get substantial returns unless the project goes through incubation, prototyping and actually gets into production. Critics of such fundraising sites have consistently highlighted the limitations.
Prosper is kind of a fundraising site but there are a few differences.
What Happens On Prosper?
There is a group of people who have a lot of money and are willing to invest in business ventures, projects or simply wish to lend some money on interest. There are obviously people who need to borrow money, whether it is for professional purposes or personal reasons.
Prosper facilitates the meeting of the two groups. Borrowers can list their loan requirements explaining in detail every facet of the need and lenders can assess the listings and decide whether or not to satiate the request.
Borrowers get their loans and pay back with interest over a period of time. Lenders get handsome returns, usually paid monthly.
Does It Work?
Prosper has managed to facilitate borrowings or lending of $2 billion and more than 250,000 people have managed to get a loan. This surely proves that the concept of peer to peer lending facilitated online does work. But there are some red flags.
Prosper advertises on its homepage that the APR or the interest rate to be paid annually starts from 6.73%. That is very reasonable when you consider loans from banks or financial institutions. But this is the lowest APR and it is only applicable for a handful of borrowers. The APR can go up to 35.36%. Now that is exorbitant.
The question thence is, in the absence of legal or autonomous regulation who decides what a borrower should pay? How many people actually get the lowest interest and how many end up paying exorbitant interests?
Is this new age usury or the Good Samaritan that helps people in need of money and helps people with money to make more money?
Jury Is Out
There are obviously many people who have had immense help from Prosper and there would be applications or loan listings turned down. The jury is out if Prosper has more pros than cons.
*You may also be interested in reading about Lending Club here.