Feb 5th, 2007
Recently I wrote about my positive experience getting a personal loan from Prosper, a peer-to-peer lending service.
To be honest, when I applied for the Prosper loan, I had no idea it would be funded – there seem to be far more unfunded loan requests on Prosper than funded loans.
Now that Prosper and its network of everyday lenders is helping me, I did some research into what factors contribute to a successful loan request.
Here are 11 pointers for Prosper borrowers with less than AA credit to increase your chances of getting the loan you want.
1. Be Honest – Not only will prospective lenders see right through a fictional story, falsifying your Prosper posting is no different than putting fake info on a credit application – it’s illegal.
2. Keep It Brief – Attention spans are short, so write like a magazine editor; get the crucial information in the fewest words. You want lenders to read your request and fund your loan in one minute.
3. Sell Yourself – Unlike the cold math of institutional lending, a Prosper lender’s decision is emotional. Write a few sentences to get lenders to like and trust you. Include any hobbies or organizations you belong to that may appeal to others. Talk about responsibilities you fulfill at home and at work. Do not, however, write pages of pity-me prose. Yes, lenders want to help, but they want to make an investment, not a donation.
4. Think Forward – Write more about the future than about the past. Over-justifying why you have poor credit will lead lenders to dwell on the fact you’re risky. Focus on how the loan will improve your monthly cash-flow or improve your life once paid off.
5. Include a Budget – Lenders want to see that you can afford the monthly payment and your existing lifestyle. Provide a breakdown of your monthly income and housing, transportation, food, entertainment expenses, as well as other debt payments. Even if your budget needs some tweaking, a borrower who has taken the time to set a budget beats one who hasn’t. Note that all Prosper loans have 36 month terms. Don’t borrow more than you can afford to payoff over this time period.
6. Explain Your Credit – Without over-justifying or telling a sob story (see above), provide a concise explanation of why your credit is less than perfect or you have a 60% debt-to-income ratio. Limit descriptions to things like “unexpected medical bills”, “lived above my means”, “lost my job”, etc. Then provide a sentence explaining how your situation has changed or how the loan will enable it to change. Don’t know why your credit is poor? Uh-oh. Grab a free copy of your credit report before going any future.
7. Describe Your Job – Just as with traditional lenders, your employment is critical. After all, your job is the source of the money that will payback the loan. Without giving away your employer’s identity, note what you do, how long you have been there, and any recent promotions or raises.
8. Include Your Photograph –When deciding between two C-rated borrowers, a lender will opt with the one that he or she feels more comfortable with, and lenders will be understandably more comfortable with borrowers they can see.
9. Avoid Automatic Funding – Automatic Funding is a feature on Prosper that will close your loan listing as soon as enough bids are received to fund it. This feature actually helps lenders, not borrowers, because it guarantees they won’t be outbid. It also guarantees you’ll pay the highest interest rate you requested. Lastly, if you have are a risky borrower, selecting Automatic Funding implies you need the loan as quickly as possible, a deterrent to some lenders (Also note, the Prosper verification process can take a week or two; Prosper is not an appropriate source for a “quick loan”).
10. Select a Reasonable Interest Rate – Prosper provides its scatter graphs of past loans as a guide for both you and for lenders. Even if you believe, despite your D credit, you’re especially worthy of a 5% APR, lender’s will not. For the best chance of getting your loan funded, choose a higher APR. If your listing is attractive and you do not use Automatic Funding, your rate will be bid lower.
11. To Group or Not to Group – Prosper’s group feature was created to allow virtual peer-to-peer lending to leverage real-world and other virtual relationship networks. In other words, if you belong to a church that has a group on Prosper, other church members will be more likely to lend to you because, for one, they identify with you, and two, they suspect you’re a better credit risk. Today, some Prosper groups are simply private networks of lenders who get together to “pre-screen” borrowers and then fund the borrower’s listing. Groups are still an option for borrowers to explore. My experience is proof you can get a good loan without a group, just as joining a group won’t guarantee your loan will be funded.
Ready to see if Prosper can help you reduce your debt faster?
If you’re interested in reading more about my Prosper experience, please check out How Prosper Saved My Ass.
I'm David, an ex- financial journalist and recovering debtaholic. I'll help you get out of debt, get saving, and get on with life. Sound good? Please subscribe (RSS or e-mail) or follow me on Twitter.
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When I’m lending I take only one of these 11 into account. Most of them can be out and out lies, so I tend to not even read them. I don’t want to be swayed by a supermodel picture or someone who can copy some good story from another loan that was previously funded.
I do look at the automatic funding and if borrowers avoid it, they are making it tougher to get their loan funded. It might not be too much tougher, but as stated it helps the lender. If you are going to help the lender, you are going to find that the lender prefers to help you.
The key point I think is #10. If you start off high enough, you’ll definitely get funded. Hopefully, it will get bid down by lenders and it will even be at a rate you want
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#9 is definitely the key to avoid if you have the time for the loan.
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