Prosper is a peer-to-peer lending platform that connects borrowers in need of capital with lenders, also known as investors, who are seeking a return on their money.
Borrowers in search of alternatives to high-interest rate credit card charges who also have good credit scores stand a good chance of finding lower rates at Prosper.
Whether you are looking to consolidate debt, make home improvements, buy a car, or finance a big life event, such as a wedding or a new baby, Prosper can loan you anywhere from $2,000 to $35,000 within 1-3 business days from the time you are approved.
Meanwhile investors can loan money to borrowers who have average incomes in order to earn returns that beat savings rates offered by traditional banks.
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4 out of 5 stars
via Prosper secure site
Why Choose Prosper?
For lenders, Prosper has historically produced returns that far exceed the interest rates offered by traditional banks. And for borrowers, interest rates charged are often lower than credit card interest charges.
Prosper is a marketplace that connects borrowers to lenders, so it doesn’t actually loan its own capital as some other lenders do, such as SoFi.
The idea behind Prosper is to provide borrowers with lower interest rate loans over 3 → 5 year periods on average, and keep things simple with a single monthly payment and no hidden or prepayment penalty fees.
Each loan does have an origination fee that ranges from 1% → 5% depending on the risk category Prosper assigns to you.
Plus, late payment penalty fees of $15 are applied if you fail to make full payment within 15 days of the due date.
Prosper is designed for borrowers who have a FICO® credit score north of 640, a debt-to-income ratio lower than 50%, income higher than $0, and no bankruptcies in the past 6 months. You should also have fewer than seven credit bureau inquiries in the last 7 months.
Repeat borrowers are subject to slightly more stringent restrictions. If any previous loans on the Prosper platform were charged off or you had been declined for a loan in the prior 4 months due to delinquency or returned payments on a previous loan then you risk being disqualified.
So how much do you pay in interest on your loan?
The short answer is it depends. When you join Prosper, your credit score, income, past borrowing history, and other factors will be analyzed to assign you a letter grade – which you can view – that represents your risk category.
The range is from AA (lowest risk) to HR (highest risk) and spans the following spectrum.
If you have a letter grade of AA, you will generally pay the lowest APR and lowest origination fee while a HR designation will result in a high origination fee and high APR.
If you have some savings squirreled away and want to earn a better return than you could get from a traditional bank savings account, Prosper is a way to invest in high-income professionals with above average credit scores.
Although borrowers must have a minimum credit score of 640 to be eligible for a loan, the average FICO® credit score for a Prosper borrower is 710.
And where Prosper also wins brownie points is the average annual return of 7.41% earned by Prosper lenders knocks the socks off those offered by conventional savings accounts during the period monitored from January, 2011 to December, 2016.
Over 83% of active investors on the Prosper platform reported returns that met or exceeded their expectations, and it’s no surprise why when you discover that the average borrower has an income of $88,684.
How Prosper Works
Getting started with Prosper, whether a borrower or a lender, is straightforward. Borrowers can quickly receive rate quotes and, upon approval, get money within 3 business days while lenders can earn interest on loans that span a range of creditworthiness that matches their risk and return appetites.
HOW PROSPER WORKS FOR BORROWERS
Borrowers are invited first to check what loan rate will apply. After clicking, the Check Your Rate button, you will be guided through a series of questions, starting with where you live and how much you wish to borrow.
Once you set up an account, you will receive offers. And don’t worry about whether checking your rate will affect your credit score, it won’t.
If you like what you see, you can move forward with a formal application.
You will need to provide some basic information, such as your social security number and income, during the application process.
Generally, pay stubs or tax forms are sufficient for showing proof of income, but make sure the figures you provide online are accurate so that they match what is on the physical statements that you provide.
Once approved, you will need to enter your bank account and routing numbers so that funds can be sent to you.
From start to finish, it takes up to 3 days to receive your monies.
To be approved, you will want to make sure that you check the boxes for minimum borrower requirements.
|Minimum Credit Score||640
(average is 710)
(average is $88,684)
|Minimum Credit History||None|
|Ineligible For Prosper Loan||If prior application declined
over previous 4 months
HOW PROSPER WORKS FOR LENDERS
When you loan money to a Prosper borrower, you are essentially an investor seeking a return on your money and will be compensated based on the level of risk you take.
After you sign up, you can browse loans based on creditworthiness, FICO score, rating, and term length.
You will discover a wide range of borrowers whose anonymity is preserved other than their general profile.
You could for example lend money to a high-salaried dentist who is looking to consolidate debt to a lower rate.
Or you could choose a borrower who may be a riskier bet because they are self-employed and starting a new business.
If you don’t feel comfortable investing in a single person, you can choose the Auto-invest tool to build a target portfolio based on your criteria.
Since 2006, Prosper investors have helped fund borrowers to the tune of over $10 billion, so you can be confident the platform and process are robust, but if you are not 100% comfortable, you can start with a loan of as little as $25 if you wish.
Key statistics you should know as an investor:
|Minimum investment per loan||$25|
|Active investors who received returns that met or exceeded expectations||83.5%|
|Average FICO score of Prosper borrowers||710|
|Average annual income of Prosper borrowers||$88,684|
While Prosper will not charge you a penalty fee for paying off your loan balance early, you will be dinged with fees if you pay late, via check, or have insufficient funds.
|APR Rate||5.99% → 36%|
|Origination Fee||1% → 5%|
(or 5% of payment amount, whichever is lower)
(or 5% of unpaid amount, whichever is higher)
|Insufficient Funds Fee||$15|
|Prepayment Penalty Fee||$0|
The primary cost of your loan with Prosper will stem from interest rate charges that are in the range of 5.99% → 36% depending on your risk category.
And although Prosper claims no prepayment penalty or hidden fees, you will be hit with fee penalties if your payments are not on time or made by check.
Prosper Pros and Cons
Borrowers can access cash fast and at rates lower than what credit card companies often charge while lenders can invest on auto-pilot, and earn better returns than bank savings accounts offer.
|Prosper Pros||Prosper Cons|
|✅ Above Average Credit Score Borrowers: Borrowers have higher credit scores than the national average, which is a positive for investors, and provides an incentive to borrowers seeking loans to improve their credit ratings.||❌ Geographic Restrictions: Most states are covered but residents in some states are prohibited from using the Prosper platform.|
|✅ Fast Access To Cash: Loans can be issued in as fast as 1 → 3 business days.||❌ High Debt-to-Income Ratio: Debt-to-income ratios above 50% (excluding a mortgage) are not permitted but that is still quite a hefty debt burden to carry, which may pose higher risk to investors.|
|✅ Graded Borrowers: Borrowers are graded according to risk profile. Borrowers with better grades pay less while investors can choose across a spectrum of risk profiles, term lengths and return rates.||❌ Range Of Loans: Prosper is great for borrowers in providing capital to fund a wide range of loans from home improvement to starting a business but for investors caution is warranted as borrowers in need of money for new start-up businesses may present higher risk than you can evaluate because you won’t have access to the finer details.|
|✅ Up to $35,000 Loaned: Anywhere from $2,000 → $35,000 can be loaned to borrowers but investors can loan out much more.|
|✅ Invest On Auto-Pilot: Investors can loan money to individuals or to a group of borrowers via notes using the Auto-invest tool. Approximately $2,500 spread across 100 borrowers in a note is sufficient to be diversified according to Prosper.|
|✅ No Hidden Fees: If you pay late or via check, you will be dinged but there are no hidden fees or pre-payment penalty fees.|
|✅ Low Investing Minimum: If you want to test out the platform as an investor or a lender, you can start with as little as $25.|
|✅ In-depth Loan Profiles: Prosper does an excellent job of displaying key borrower characteristics without disclosing any personally identifiable information, so investors can better assess the risk of default.|
Prosper is an early pioneer of peer-to-peer lending, and has the advantage of experience on its side now having learned to serve more creditworthy borrowers than it used to when it first began.
For borrowers, the attraction is obvious: fast access to cash at reasonable rates. In as few as one to three business days from the time of approval, you can receive funding and likely pay lower interest rates than you would pay to a credit card company.
Plus, you can borrow money for a wide variety of purposes, whether consolidating debt, buying a new car, or even starting a new business.
You also get to check your rate without hurting your credit score, so you can sign up risk-free and explore the platform without penalty.
On the other hand, investors can enjoy the confidence of knowing Prosper is a robust platform that has loaned over $10 billion since inception in 2006.
And depending on how much you wish to earn and your risk profile, you can target a broad spectrum of borrowers who are graded based on a proprietary Prosper rating system.
Because borrowers on average have above average incomes and credit scores, investors can have more confidence that the primary risk of lending – default – is mitigated and can diversify risk substantially by investing in notes that groups borrowers together.
For the truly hands-off investor, the Auto-invest tool lets you put your investing on auto-pilot because it will loan money out according to your set preferences automatically when prior loans have been paid off.
All in all, Prosper earns its badge as one of the leading peer-to-peer lending platforms worthy of consideration by both borrowers and lenders/investors.