Earlier this week I wrote about the proliferation of workplace loans – see WSJ article. I was disheartened to see that these loans start at around a 90% interest rate. For the person who’s already working as much as possible but falls into a pitfall, there may be no other choice but to use these workplace loans to help pay their bills. The problem is that these loans are more like little traps themselves.
Unfortunately, the only solution I had to offer in my post was to stop taking these loans. If you’ve already taken a workplace loan, I suggested to pay it back and then quit that job. Any company offering these loans does not care about their employees. In fact, they are trying to profit off of their employees by offering these super high interest rate loans. In my post, I also referred the reader to an earlier post I wrote about my 5 best small business ideas. I also added another 3 great business ideas to that list.
It bothered me that the only helpful advice I could give was to quit that job. I did a little research and found Prosper.com. Prosper is a peer to peer lending site. That means that Prosper acts as sort of the middle man between people who want to invest their money and people who need short term loans. And by short term, I mean 3 or 5 year payback periods.
The interest rates on Prosper currently range from 6.73% to 35.36%. These are not fantastic rates but way better than the rates of workplace loans starting from 90%+.
Borrow $1000 Scenario
Let’s say you needed $1000. Let’s do a quick and easy scenario comparing your repayment with the two types of loans – Prosper loan vs. workplace loan.
Prosper loan – $1000 paid back over the course of a year at 21% interest APR (I cut their interest range almost right down the middle). You’ll pay back $210 to borrow $1000 for one year. That’s high and it’d be best for all of us to not even have to take these kinds of loans.
But wait till you see what happens with a workplace loan. $1000 paid back over the course of a year at 90% interest APR (I used the low end of their 90% rate). By the end of the year, you’ll have paid back $1900. $900 in interest! Ouch. That’s a lot of coin for the privilege to borrow $1000.
Social Lending Network has a great Video on YouTube showing how easy the borrowing process is in their Prosper review video:
In conclusion, before you apply for that loan through your workplace or at a payday loan shop, check out Prosper.com. Why not give them a shot first before you make that leap and have to payback a lot more than you borrowed? The difference could be worlds apart.
Have you ever borrowed either from Prosper or take a workplace loan? What was your experience like?