Tuesday, July 17, 2007

Tips For Borrowers

In my effort to fund a few more Prosper loans, I've been looking at tons of listing descriptions. I've developed a set of criteria I look for and I want to pass it on to those borrowers who are interested in writing better listings.

Let me begin by saying that if I'm seriously looking at your listing description, I'm prepared to fund it. I use custom searches that pick interest rate and borrower details so that I only spend time on pre-screened listings that meet my criteria. From here, I'm looking to understand that you're taking your finances seriously and that this loan makes sense. All you can do is lose me at this point, so here's how to keep my attention.

Be Specific
It's not enough to say that you need the money to pay bills or consolidate loans. What bills and what loans? Don't just list the credit card company names. List the amounts and interest rates for all your outstanding debt. When you list your income and expenses, be verbose. Gory details and the whole nine yards - rent/mortgage, food, gas, property taxes, rent, video games, newspaper subscription. You're trying to convince me that you know your financial situation. You'll pay the cost if you don't want to discuss your financial situation. Remember, every lender who passes you by increases the interest rate you pay if your listing gets funded.

Have Numbers That Make Sense
I will check your claimed monthly (net) earnings against your income range and sanity check all the expense numbers. Back in the earlier days, there were borrowers who truly wrote that they could feed a family of 4 on $100 / month. This raises a red flag. I concede that this may be possible, but I won't believe it if you have a $2000/mo mortgage so explain anything you're doing that may create odd-ball numbers. Equally, if your income and expenses show a huge monthly cash flow, but you still need the loan, I'll think you're hiding something. Sometimes I will ask you to clarify, other times I'll just move on.

Situation Killers
I want to see that the loan will improve your situation. If you seek a 20% loan to consolidate a bunch of 17.99% credit cards, I won't believe you want to improve your situation. If this somehow improves things for you, explain it to me. Getting a Prosper loan to "improve your credit rating" is not sufficient. Handle your debt well and your credit rating will follow. The same applies to consolidating student loans that are at a lower interest rate (a big red flag). And finally, I will pass on loans for a down payment on a house or car. This is a red flag that you're a higher credit risk than Prosper's credit grade indicates. If you've got a house and bragging about your equity, explain why you're not using a home equity line of credit.

I have always been impressed by the listing description quality from the No Bull Investors group. Check out some of their listings for some good examples.

No comments: