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Peer to peer lending is still a relatively new concept in the world of investing and lending.  Compared to banks and other financial institutions which have been operating for generations, personal loans through an online collaboration of borrowers and investors is only a few years old.  As such, many people question whether companies like Prosper.com and Lending Club are scams or legitimate opportunities to borrow and lend money.

To ease some concerns, we look at some of the benefits and drawbacks of this process and the companies that are involved in making it happen.  Prosper.com and Lending Club are two of the major companies providing investment opportunities to investors who are willing to loan money to individual borrowers.  Both operate within regulatory standards of the states in which they do business with Better Business Bureau ratings that support a legitimate business operation.

Borrowers may be concerned about predatory lending, especially those vulnerable to this practice due to bad credit or poor credit history.  As with any situation where money exchanges hands, it is important to understand all the terms and conditions associated with the transaction before signing on the dotted line.  Borrowers using Prosper.com and Lending Club must meet certain credit requirements before being paired with a lender.  The benefits of this process allow borrowers to realize lower interest rates on loans, while investors see a higher return on their investment than those offered through similar investments offering the same level of risk.  Early investors discovered quickly that the somewhat lax credit requirements for peer-to-peer lending resulting in a higher rate of default, however those issues appear to have been addressed in recent years.

To minimize risk, lenders should learn as much about the process and credit requirements of potential borrowers.  Those with poor credit pose a higher risk of default, however return on investment if the loan is repaid are higher.  It all depends on individual risk tolerance and the borrower.  Both companies provide lenders with detailed information regarding the borrower, what the money will be used for, the terms of repayment, etc.

As this industry continues to grow, both borrowers and lenders should pay attention to any changes which may occur.  As it stands today, both Prosper.com and Lending Club provide alternative borrowing and investment opportunities that may appeal to individuals who understand the benefits and risks. They even help people with limited credit get financing for no credit loans.