Update: Since writing this post, both LendingClub and Prosper are registered with the SEC and running fully for both borrowers and lenders.
Two years ago I wrote several articles about peer-to-peer lender Prosper and the debt consolidation loan I secured through the site.
But this year Prosper and competing lender Lending Club have been forced to temporarily suspend their lending operations as they pursue registration with the Securities and Exchange Commission (SEC).
While LendingClub reopened its site last week, Prosper just recently shut down and may remain down for several months. What does this mean for lenders, borrowers like me, and the future of peer-to-peer loans?
While some alternative lenders including Zopa Loans have ceased making loans indefinitely, Prosper will continue making loans, but only after regulators approve Prosper’s securitization of its loans. This will help the site avoid any potential legal problems it could face from doing business in relatively uncharted territory.
What Prosper Pausing Means for Borrowers
While Prosper will not allow lenders to invest in any new loans for up to six months, Prosper will service existing loans as usual. That means borrowers’ payments will be due as usual and lenders will receive their disbursements as borrowers pay down their loans.
I just made my 24th on-time Prosper payment out of 36 total installments. I’m looking forward to being rid of the loan in just one more year, but I also continue to be eternally thankful for the loan that will have saved me $1,000 in interest over the credit cards I was able to pay off. Prosper allowed me to consolidate and refinance some that debt in a way that simply wasn’t possible with other lending sources.
New borrowers can still request a loan on Prosper, which the site will try to fund via other lending sources. Unfortunately, these loans will be subject to many of the same restrictions and rigid credit requirements as traditional bank personal loans. Given the current credit crunch, it is unlikely that loan requests from sub-primer borrowers will be funded.
Borrowers have an alternative in Lending Club, which is back in operation and currently making loans to borrowers with at least a 660 FICO score and who have no current delinquencies. Learn more about Lending Club.
What Prosper Pausing Means for Lenders
As mentioned above, current Prosper lenders will continue to receive the disbursements from existing loans as borrowers (hopefully) make their payments on-time. Current lenders cannot, however, invest in new loans until Prosper emerges from its registration period. Unfortunately for Prosper, this means many lenders will withdraw their funds and may not return to Prosper immediately when it reopens.
Should everything go as planned for Prosper, lenders will again be able to invest in loans. The question remains whether they will still be willing to do so.
Are you a Prosper lender? Is your portfolio still profitable, or are borrowers defaulting? What has your experience been—and will you return to Prosper when it reopens?