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Pros and Cons for borrower on Prosper and other P2P Lending Community

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A few months ago, we wrote our first article on Prosper and P2P lending community. Since we received several questions about this alternative way to get credit, we thought it would be great to list the pros and cons of this alternative credit system exploited by Prosper and other P2P lending community. Today we start with the advantages and disadvantages of borrowers.

Pros

- You can get access to credit by another mean than traditional banks and high interest loan (shark) companies.

- You don’t need to take an appointment with a banker since you can put your credit request online on Prosper.

- Even if you have a bad credit report, you may be able to get credit at a cheaper rate or with fewer conditions than with a regular bank.

- You have the possibility to explain your project and the reason why you need credit. If you have late payments or bad credit rating such as R4 or R9, you will also be able to justify them. Sometimes, it’s not a matter of goodwill but more of bad luck.

- Most banks will require a ton of proofs if you do not have a “standard job”. If you are a company owner, self-employed or work on irregular schedule, it might be difficult for you to get a loan at a conventional institution. P2P lending communities offer a great alternative for these people.

Cons

- Your loan is usually on a shorter term and amortization. Most banks will lend you over 60 months while P2P lending community will offer loan over 24 to 36 months. Therefore, P2P lending community loans are only good for short term needs.

- If you have a good credit score, you may be able to have much better lending conditions than with Prosper. Even though they offer better rate to individual with good credit rating, you may be able to find even better at your regular bank.

- It’s harder to “raise” fund in order to cover your full amount than going at the bank. Most lenders on Prosper will spread their risk among several people. Therefore, if you need 10K, it might take a while to get the full amount in order to accomplish your goal. If you go at a bank, you will get your money right away… if you qualify ;-)

- The amount to be borrowed is limited as well. It is usually around $25,000. If you need more than this amount to consolidate your debts, P2P lending communities might not be the best way to reorganize your personal finance.

Considering the pros and cons for borrower on Prosper and other lending communities, we may say that it is suitable for a specific type of situation only. Nonetheless, it is still a great credit alternative to banks.

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