Correction appended: This article incorrectly stated that Evan Plisner is the president of the Michigan Investment Club. He is in charge of making investments for the club. The article also said that the Michigan Investment Club invests funds using Prosper.com. It does not.
Instead of lending and borrowing money through banks, some business-savvy students are using the person-to-person loan website Prosper.com to lend money or apply for student loans.
Along with other person-to-person lending services, including Lending Club and Lending Circle, Prosper offers students a chance to earn increased returns with higher lending interest rates than available at banks. The lending service also lets student borrow money without going through a bank.
With Prosper, users first create a profile that specifies whether they want to lend or borrow money using the website. An individual’s profile also displays personal background information and his or her credit score.
Although there are many students from other colleges and universities seeking student loans on Prosper’s website, many University students said they use the website to lend money.
LSA sophomore Evan Plisner, a member of the Michigan Investment Club, said Prosper.com is one tool students could use to make investments.
“We were looking for different ways to invest that weren’t tied to the stock market,” he said. “And what Prosper allows you to do is to diversify both your risks and returns.”
Depending on an individual’s credit score, Prosper offers lenders a higher interest rate than most banks, which means increased returns for lenders.
Plisner said he has found that he can get a higher interest rate when lending money on Prosper than he can lending through banks.
University alum Brian Walby, who uses the website for lending, said he would consider borrowing money because of the lowered interest rates.
“I think it can be beneficial to a borrower so long as the loan application is done thoroughly,” Walby said. “But you have to make sure that you fill out the application in full, and explain why you are going to be able to pay it, because the lenders read those and read them thoroughly to see who has a good story.”
The need for lenders to self-screen borrowers may be part of the reason peer-to-peer lending sites like Prosper haven’t really taken off.
Economics Prof. Matthew Shapiro said in an e-mail interview that lenders run the risk of not getting their loan repaid if they don’t pick their borrowers carefully.
“It is difficult for individuals to assess the ability of a borrower to repay a debt,” he said. “It is also difficult for individuals to collect on loans that default. Banks, credit card companies and other institutional lenders are better set up to assess the qualifications of borrowers and deal with borrowers who do not pay.”
Students unfamiliar with Prosper doubted the safety of lending and borrowing over the Internet.
“I’m not always very trusting of internet sites,” said LSA sophomore Sarah Sharp. “I wouldn’t want to give out information to a site I didn’t trust.”
Despite the site’s security concerns, Walby said he thought it seemed pretty safe for the purpose of investment.
“Of the 25 or so loans that I’ve given out, one of them has gone delinquent,” Walby said. “Prosper went after that person and Prosper paid me back in full even though they weren’t able to get the money from that borrower.”
Plisner said he feels that apprehension surrounding borrowing and lending online will eventually fade.
“As people become more acquainted with Internet lending, I think you’ll see Prosper really develop,” he said.