A week or two ago [1] I introduced a new concept in the finance world: online peer-to-peer lending through Prosper.com. I have spent some time analyzing what makes loans work on Prosper and come up with the following “Six Secrets” of obtaining funding quickly and at the lowest possible rate.

1. Verify your bank account! If you do not have a verified bank account, Prosper will not give you a loan. If you are serious about obtaining funding, verifying your bank account should be your first step.
2. Stay away from “automatic funding”. Electing to have your loan funded as soon as possible is a giant red flag for lenders. If you cannot wait a few days to obtain a better interest rate, what does that say about your ability to manage your finances? While it is possible to obtain a loan with automatic funding, you are better off attracting a large number of investors with a solid loan presentation and obtaining funding on your first attempt. You will obtain the funds faster using this method than by re-listing a failed automatic funding loan request and end up with a better interest rate as well.
3. Request a small loan (under $5,000) especially if you have poor credit. Small loans fund with fewer bids, and if it is a quality loan request then you will attract many lenders who may then bid down your rate. If $5,000 simply isn’t enough to meet your needs, then try to keep your loan request under $10,000 unless your credit is excellent.
4. Write a polished, professional loan request. A good loan presentation includes good spelling, proper grammar, and contains the following elements:
     

   Introduction: Give the investors some info about yourself and your loan request. Example:
   “I am a 34 year old mother of twins who is actively trying to improve my financial situation. I am requesting a loan in the amount of $3,000 to consolidate three past due credit cards.” 

   Goals: Why do you need a prosper loan? Explain your request. Providing a compelling reason to borrow money is quite important. Debt consolidation and reinvesting in Prosper are both popular reasons to borrow that Prosper lenders understand and are very willing to lend on. The best loan requests demonstrate that the Prosper loan is a long-term solution, not a band-aid for your financial difficulties. Example:

   Explaining that “By borrowing $3,000 from Prosper and paying off my high-interest credit cards, I will be able to put $100 each month in savings after making the loan payment” is much more attractive than saying “I need $4,500 to pay my past due my mortgage payments.”

   Employment, Income, and Asset Information: One of the most common features of a fully funded loan request is a clear explanation of your employment situation, your monthly income, and any assets that you may have. This personal financial statement gives lenders a clear snapshot of your financial situation. By demonstrating that you understand this information, it gives lenders confidence in your ability to manage your finances. Example:

   “I have been employed for the past 4 years as an elementary school teacher. My gross monthly income is $3,200. After taxes and direct deposit into my 401(k), my net monthly income is $2,650. I currently have $1,630 in my checking account and approximately $3,000 in my 401(k). I own a 1997 Ford Taurus free and clear.”

   Monthly Budget before and after Prosper: Demonstrate to lenders that there is a clear financial benefit to you by obtaining a Prosper loan. If you list a debt, give the amount of the debt and the interest rate. Example:

   Current Expenses
   Rent	$650
   Phone	$60
   Groceries	$150
   Misc.	$300
   Auto	$259 - $12k @ 9.5%
   Capital One	$496 - $12k @ 28%
   Home Depot	$21 - $1k @ 21%
   Total:	$1,936

    

   After Prosper
   Rent	$650
   Phone	$60
   Groceries	$150
   Misc.	$300
   Auto	$259 - $12k @ 9.5%
   Prosper Loan	$426 - $13k @ 11%
   Total:	$1,845

   Proposed savings: $91*
   *Due to the 36 month amortized term of the Prosper loan, I will decrease my indebtedness faster by consolidating as well.

    

   Credit Explanation: Last but not least, devote a short paragraph to explaining any derogatory information on your credit report. Example:

   “There are two delinquencies on my credit report. One is a 30 day late payment on a Chase credit card. I am fully responsible for this late. The second is a utility account. I had moved out of an apartment but the phone bill was still in my name, and my old roommate neglected to pay the bill. I have unsuccessfully disputed this delinquency.”

    

5. Work with your group leader to verify the information you have presented. An endorsement with bid from a group leader can go a long way to instilling confidence in investors.
6. Start the bidding at 2-3% above the median rate for your loan size and credit grade. A high rate will almost always attract lenders, who then may bid the rate down to more attractive levels. If you are uncomfortable with the resulting interest rate, you do not have to accept the loan; simply review the listing with your group leader and try again!

 

By following these steps, you will give yourself the best chance of funding your loan at the lowest possible interest rate. [2] For more information, please visit Quarterlife Finance on Prosper.com