- Tim does not need to loan the full amount. He could potentially lend as little as $50.
- Tim could endorse his brother-in-law which could help the loan get funded.
- Tim's brother-in-law would get the help he needs but would be forced to be financially responsible and pay the loan back.
- Tim has reduced his overall financial liability on the loan but is still fully supporting his brother-in-law.
- If the loan listing attracts enough attention, Tim could eventually get bid out of the loan reducing his financial liability to zero.
- Tim can earn a modest return on the money he lends to his brother-in-law, while the brother-in-law can get an interest rate as low as 6% depending on his credit.
- The loan listing preparation would force Tim's brother-in-law to think through how he currently spends his money, how he plans to use the loan, and how he plans to pay it back.
- The brother-in-law would learn the importance of maintaining a good credit score.
- This is better than co-signing for a loan which could have a significant negative to Tim's credit score if his brother-in-law missed payments.
If you are new to Prosper, start borrowing here.
Posts
10 comments:
I have made two loans to friends on Prosper. I would not have made either loan if it were not for the infrastructure Prosper provides. I trust both very much, but the thought of lending to them directly isn't appealing for the awkwardness of having to collect from them every month. I think you covered the reasons very well in the original post. I simply arranged for them to get a better-than-market loan from Prosper (not me) to help them consolidate. And from my point of view, honestly I view these two as the safest loans in my portfolio. In my mental accounting, they're just a couple of CD's. Win-win.
DCS - thanks for sharing the personal experience. I'm curious, would either friend have trouble getting a loan through Prosper without your help? Are they high risk borrowers? What would you do if they were in a situation where they were late or in danger of defaulting on the loan? Did you put in a nominal amount or did you fund a significant portion of the loan?
Hope that wasn't too many questions for you but I can see how things still might get a bit complicated if the borrower wasn't able to make payments.
No problem, I'll try to cover all that was asked.
* Both are very good early 30's friends who asked for my advice on getting over their 20's credit card hangover.
* One friend was an E, the other an HR. Neither had any DQ or public records, just high utilization.
* Both were willing to share a copy of their actual credit report with me.
* I believe both could have been funded by the Prosper market (with good group leadership) somewhere near or above 20%. This would have also required them to ask for a smaller amount so as to only consolidate their debt that was charging higher than that rate.
* I consolidated their entire revolving debts for around 6%. More of a favor than an investment, but like I said, I do consider it like a CD on my end.
* We're very close and they're already very open with their finances with me. In a tight month, I know they'd warn me, and honestly I'd probably offer to make a small loan so they could be on time. However, both have stable jobs and I know they've changed their financial habits, and I seriously doubt that would happen.
* $9000 on one and $6400 on the other.
* Having helped them each save what probably would have been a couple thousand in interest payments has been the most rewarding experience of Prosper so far for me.
I'm in the "don't loan money I can't loose to friends and family" camp, but, if I did, I'd use something like Prosper. It formalizes the deal and leaves a ding on their credit report if the deal goes south.
Mike
DSC, thanks for the info. That's very generous of you and I think gets at the heart of what Prosper should be. Everyone wins. Luckily you were in a financial position where you could loan the full amount.
I think one of the biggest advantages of Prosper is that you could leverage a small amount of money and your trust in your friends and the community could loan the rest.
DCS - that is interesting. I do see people sometimes on Prosper that are lending at 25% or 29% to friends and family members. DCS sounds like he is a much better friend.
Just an addendum - I showed the friend who received a loan last March as an "HR" how to check her credit on Prosper by partially completing a new loan application. She is now an "A" 0/0/0! She's also three months ahead on her Prosper payments; debt consolidation successful so far! (I'd bet my "E" friend has likely improved her credit as well, though I haven't asked.)
DCS! Great to have you back after 9 months to give us an update!
That's a great improvement for your friend. Is she going to take out a new loan to take advantage of her now A credit grade?
This is a pretty convincing list. Because of the awkwardness of lending to friends and family, I think you make a good case for having some established way for mediating these transactions.
Nice info in this post, thanks for your advice. This is a great information for me
Please give me your support to my new blog.
thanks you
best consolidation loan
Post a Comment