A few months ago, we wrote our first article on Prosper and P2P lending community. Since we received several questions about this alternative way to get credit, we thought it would be great to list the pros and cons of this alternative credit system exploited by Prosper and other P2P lending community. Today we start with the advantages and disadvantages of borrowers.

Pros

- You can get access to credit by another mean than traditional banks and high interest loan (shark) companies.

- You don’t need to take an appointment with a banker since you can put your credit request online on Prosper.

- Even if you have a bad credit report, you may be able to get credit at a cheaper rate or with fewer conditions than with a regular bank.

- You have the possibility to explain your project and the reason why you need credit. If you have late payments or bad credit rating such as R4 or R9, you will also be able to justify them. Sometimes, it’s not a matter of goodwill but more of bad luck.

- Most banks will require a ton of proofs if you do not have a “standard job”. If you are a company owner, self-employed or work on irregular schedule, it might be difficult for you to get a loan at a conventional institution. P2P lending communities offer a great alternative for these people.

Cons

- Your loan is usually on a shorter term and amortization. Most banks will lend you over 60 months while P2P lending community will offer loan over 24 to 36 months. Therefore, P2P lending community loans are only good for short term needs.

- If you have a good credit score, you may be able to have much better lending conditions than with Prosper. Even though they offer better rate to individual with good credit rating, you may be able to find even better at your regular bank.

- It’s harder to “raise” fund in order to cover your full amount than going at the bank. Most lenders on Prosper will spread their risk among several people. Therefore, if you need 10K, it might take a while to get the full amount in order to accomplish your goal. If you go at a bank, you will get your money right away… if you qualify

- The amount to be borrowed is limited as well. It is usually around $25,000. If you need more than this amount to consolidate your debts, P2P lending communities might not be the best way to reorganize your personal finance.

Considering the pros and cons for borrower on Prosper and other lending communities, we may say that it is suitable for a specific type of situation only. Nonetheless, it is still a great credit alternative to banks.

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Prosper and other P2P lending systems are based on the concept of making loans by allowing person to person create and offer the loan. This service is much like an introduction system that charges a fee for their services. By borrowing from people, you are able to do so from a human and not an institution, which helps you feel like the person you are borrowing money from cares more about you and what is happening for you then a company that is merely trying to charge you interest in order to make money. For some individuals, this is a much safer method of borrowing and lending as you do not have to be worried that you are only ‘just a number’, and that your needs and desires are put first.

P2P has a good reputation as the rules are clearly established as are the consequences of what will happen if repayment goes unfinished. For individuals who do not trust large credit organizations and would prefer to meet out his or her own terms, this can be a wonderful idea. It is also a great way of avoiding using credit cards if you do not care to hold a piece of plastic or if you need cash faster than most loans will process your claim. This in itself is very beneficial as it means as soon as the lender approves your money will be sent straight to your account.

However, every system has its bugs and Prosper and P2P lending systems are no different. It can be harder to force a person to pay you back than it is a company as it can only be handled in small claims court. There is no collateral on any of these marketplace services, and you will never know the name of the person who is doing the lending and therefore you are unable to make a stand in this way.

Yet despite these concerns, there are many advantages including being able to repay your loan back early without penalty. In addition, you will be able to borrow with your credit being affected, and you can also be approved for a loan even if you have a bad credit score. Your information is verified as to your identity but you will not be bombarded with a lot of credit card and mortgage offers. There is also only a wait period of a few days while your identity is being verified, which costs down drastically on worrying for an extended time if you qualify for a loan. In addition, you will never be charged over 9% for a loan, which for some is a winning ticket in itself compared to the monstrous prices that banks and other lending institutions can charge you.