Peer to Peer Lenders and Credit Scores – Episode #71

Peer to Peer lending can impact your credit scores. First, let’s define peer to peer lending. Think of it like an eBay for lending. It’s a marketplace of personal lenders and borrowers who then bid on a personal loan. There are no big companies lending here. Borrowers, people like you and me, state their reason for the loan and the peer-to-peer company pulls their Experian Scorex PLUS credit score to assess their risk. Lenders, people like you and me, then compete for the opportunity to lend.

Like big mortgage and auto lenders: Most of them want to see a 760 Credit Score or higher for the best rates.

Three companies that offer peer-to-peer lending are Prosper.com, Zopa.com and LendingClub.com. Prosper.com is the largest most trafficked site and according to compete.com has over 700,000 visitors each month. But, do they report performance to the credit bureaus?  According to their website:

Prosper communicates repayment and delinquency information to credit reporting agencies. Your credit score will be adjusted accordingly, based on your loan payment performance.

For many borrowers, taking a loan through Prosper is a great opportunity to improve their credit score, which can lead to better loan rates in the future.

This has become a new way to get a personal loan that will impact your credit score. So how’s it working?

Zopa has closed down it’s US offering and now only offers its service in Japan, Italy and Great Britain.

For Prosper, an equally daunting speedbump as occurred:

…the nation’s largest peer-to-peer lending site, San Francisco-based Prosper, stopped allowing lenders to make new loans, saying it needed to wait while the Securities and Exchange Commission evaluated its regulatory filings.

Monthly loan volumes at the company have been declining since the credit crisis worsened this spring. Prosper, which is unprofitable after raising $40 million in venture capital, now faces the damaging possibility that lenders may take their money off the site instead of waiting for the S.E.C. to allow lending to resume. That could take several months.

“Regulatory agencies seem to want to make sure they have all this understood before it gets too big,” said Jim Bruene, editor of the Online Banking Report. “This is definitely going to slow peer-to-peer lending down.” -NYTimes, Oct. 15, 2008

Conclusion: this category of loans has hit some hurdles, but keep an eye out for it as an alternative in the future. I’m still a proponent of shopping around. If you need a personal loan, talk to your bank and compare rates on these peer to peer sites and see which gives you the best deal.