I don't often talk about borrowers although I've had a couple posts on the combination of investor and borrower benefits of peer lending. I have long advocated the community aspect of p2p lending as well as how we are helping a borrower while sticking it to some big institution (usually a high rate credit card company) so I am going to start showing how this actually works and helps some borrowers.
Nick (name changed to protect his identity) is a personal friend of mine. He found peer loans all by himself, although he did ask me what I thought of Prosper, which is where he got his loan 3 or 4 months ago.
Nick is a successful attorney at a very small practice. He has good credit and his solid payment history qualified him for an A loan if he took 36 months or a B rated loan for 60 months at Prosper.
Under ordinary circumstances, he lives well within his means but his very good credit became a little less good (but still over 700 FICO making him still a prime borrower) due to a couple of unusual circumstances. They included
1) a costly divorce (much of which was put on a CC)
2) a sick family member that he helped out meaning very short term, very expensive unexpected one time expenses
Thanks to his continual payments on time, his credit score was still high, yet it was lower than it had been since his Revolving Credit used (known as Bankcard Utilization) went from a very low % to a higher %. This is something we discuss regularly and you can review in the Credit Analysis category of posts to your right --->
Prosper to the Rescue
The newly recently one time accumulated debts based on these 2 events in Nick's life brought him to Prosper for the most common of loans, the Debt Consolidation loan. Instead of 16% to his CC company, his A rated 3 year loan got him 7.25%.
According to Nick, Prosper was a g-dsend to him since despite his income and credit, no bank would talk to him except to issue him a high rate high limit credit card essentially not improving his financial position or his interest rate from where he already was.
The fixed term and payment of the Prosper loan means knowing how much he would owe each month. This was a comfort to Nick as well without having to recalculate interest and principal balances each month from his CC statements to see where his money would work best (as in how much money to put towards paying down his CC balances)
How Did Everyone Do?
Nick's benefits include:
- Fixed payment and term
- Revolving balance available again to increase his FICO score
- Interest rate cut by more than 50%
- Has a payment he knows he can easily afford
Investor benefits include:
- Good loan at a good rate way better than a savings account
- We get to help someone stick it to their CC company
- We feel good about helping a member of our community
- Nick is already referring friends that hopefully will give us more good loans to invest in
This is the definition of a win/win and thanks to the decentralized, democratized access to capital that peer lending platforms like Prosper provide, we all get to participate and benefit including borrowers like Nick.