Prosper Peer to Peer Lending
Prosper was founded in 2006, was the first peer-to-peer lender established in the United States. And with 1.25 million members, Prosper is also the largest peer-to-peer lending service. The company has funded more than $350,000,000 in loans since its inception. Like other peer-to-peer lending services, Prosper connects investors and borrowers which allows to both remove traditional financial institutions from the equation.
Prosper's potential borrowers can apply for loans for a variety of purposes including debt consolidation, home improvement, business, auto and more, so the company offers its customers a wide range of personal loan options.
If you need to borrow money, you'll find the application process to be quick. Borrowers simply log-on to Prosper's website and select a loan amount and the purpose of the loan. If approved, their loan is quickly placed on the loan listing on the site. Prosper will assign you a risk rating based on a wide variety of factors including your credit history, income, payment history and current expenses. Prosper uses Experian credit score to evaluate a borrower's credit score. Prosper requires new borrowers to have a credit score of at least 640. However, existing Prosper customers only need a credit score of 600.
Most importantly, you can use the funds from your loan for a wide variety of purposes including consolidating debt or buying an automobile.
Prosper appeals most to consumers with existing debt and those without the ability to borrow from a bank. Unlike traditional banks, there's no collateral requirement of putting up a house, or some other valuable item, as a security.
At Prosper, you can borrow anywhere from $2,000 to $35,000. These fixed rate loans can vary in interest rates from as low as 5.99% to as high as 36.00% APR with terms of three or five years in length.
One of Prosper's unique points is its approach to interest rates. While the company does factor the borrower's credit score, the final rate is determined by a bidding system. Borrowers are given a range of interest rates they are approved for and the borrower lists the amount of interest they're willing to pay. Meanwhile, investors list the bottom line interest they will accept for loans. The loan is finalized when it is fully funded by investors whose terms align with the borrowers.
Prosper won't charge you to apply through their service, but if you do receive financing you have to pay an origination fee. You will incur an origination fee that is a certain percentage of the total loan amount, varying from one to five percent depending on the rating assigned to you by Prosper and the length of your loan.
With this in mind, Prosper can be an inexpensive or expensive option for borrowers given the high range of interest rates offered and the origination fees charged.
Other than the origination fees and your agreed upon interest rate, Prosper demands very few fees, which separates the company from traditional financial institution who charge an assortment of hidden fees.
Currently, investing in Prosper is allowed in 30 states. Potential investors can log-on to the company's website to find out if their state allows investment. Prosper requires that potential investors US residents, at least 18 years of age, and to have a valid Social Security number. In addition, there are requirements which are specific to the state where the investor resides.
Prosper also requires that potential investors have a minimum income of $70,000 per year or a minimum net worth of at least $250,000. It's also typical for states to require that you need to purchase notes in an amount that is no greater than 10% of your investment net worth.
A prosper investor's participation is fairly straightforward. The investor establishes his or her preferred criteria for a borrower and selects the loans which best align with that criterion.
Allowing investors to set their criteria makes it easier for them to find the best options which best fit their risk profile. The range of return an investor can expect to receive goes from 5.48% to 11.35%. Borrowers with higher credit scores are more likely to repay on time but the investor also gets a smaller return on their investment. Conversely, borrowers with lower credit scores are, obviously, higher risk but an investor can potentially earn more by investing in them. This creates the opportunity for savvier investors to develop a bit of a strategy. Especially because Prosper allows investors to fund loans for as low as $25. The low funding minimum allows investors to maintain a diverse portfolio of borrowers which can help mitigate some risk. In addition, once the borrower makes payments, you'll receive the funds in your Prosper account.
An obvious point of concern for investors is the risk of not getting a return on your investment. Potential investors should be aware that in 2010, Prosper reported that 22.45% of all money lent since inception had been charged off and an additional 2.51% was delinquent but not yet charged off. Knowing this, investors may want to take a more conservative approach in risk management.
Prosper's customer service is top notch as well. While service representatives are only available by phone Monday through Friday, their offices are open until 6 pm pacific, which should provide ample time for those on the east coast to contact them. For investors, customer service is available until 5 pm pacific time. In addition, curious members can send any inquiries they may have via email. One of Prosper's representatives typically responds within a few days.
Verdict - Very Good
Prosper makes it easy to find financing with their simple application form. What's more, they allow you to ask for financing for a wide variety of purposes. However, if you have had credit problems in the past, it's likely you'll receive a lower rating, which means you will have a higher interest rate and a bigger origination fee. This can make this an expensive option for you to consider.