I have a loan through Prosper.com, a “social lending” site that allows regular folks to pool their money to fund loans to other regular folks. My loan was small and I took it out in the early days of Prosper.com, before it was so difficult to get a good interest rate there.
As far as I can tell, the individual lenders remain the creditors, and Prosper.com does the loan servicing. My payment is simply deducted from my bank account every month, although I can make additional payments if I want to through the website.
Prosper.com reports that it has a delinquency rate of only 2.7%. In other words, only 2.7% of loans end up not getting paid. Borrowers who are late on a payment start incurring late fees. Loans that go unpaid for at least a month get sent to a debt collector and reported to Experian and Transunion. (Prosper.com reports its loans anyway, so using Prosper.com can also help build a credit score.) At four months, the debt is charged off and sold to a debt buyer.
Should you consider Prosper.com? For those with good credit, there are much better options. For those with mediocre or bad credit, Prosper.com may turn out to be a much better option than taking out a 300% APR payday loan or a variable-rate credit card. And since Prosper.com relies on individual judgments and allows borrowers to “plead” for credit by posting pictures and information about themselves, borrowers may get loans they could not otherwise.
Still, Prosper.com loans are just loans, after all. If borrowers miss payments, it can ruin their credit and they may find themselves pursued by an abusive debt collector, just like with any other consumer debt. Always borrow with caution.