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Prosper Lender Review
7 Jul 2018

Prosper Lender Review

Prosper has given over 950,000 loans to over 770,000 people totaling more than 12 billion dollars. Individuals have the opportunity to borrow and lend from each other with Prosper personal loans marketplace.

If you are looking for a loan that traditional banks won’t agree to, Prosper may be an option for you. The unique peer to peer lending marketplace allows individuals to explain why they need the loan and their current credit situation.

Keep reading to find out the pros and cons of obtaining a loan through Prosper. A peer to peer loan may be right for you.

The Company

Prosper was founded in 2005. They are considered to be the first of its kind by being a lending company that doesn’t actually lend their own money.

Prosper is a peer-to-peer marketplace for finding personal loans. Individuals and companies can invest in borrowers to earn returns.

Prosper takes care of the loan processing for the lenders and borrowers that have matched. Leading investors back Prosper including Sequoia Capital, Francisco Partners, Institutional Venture Partners, and Credit Suisse NEXT Fund.

The Basics

The average person that borrows through Prosper has excellent credit and high income. Each borrower is scaled on a grading system that lenders use to determine the level of risk for each investment.

The Process

Borrowers apply and qualify for a certain loan amount and repayment term. Potential investors then browse the marketplace and select which loans they would like to invest in.

Once a loan has been fully invested in, Prosper handles the processing and payment from the borrowers and to the investors.

Loans, Rates, and Terms

Prosper loans range from $2,000 to $40,000. You can expect your APR to be between 6.95% and 35.99%. They offer repayment periods for three or five years.

The loans are fully amortizing and unsecured. The rate and term you are offered will be based on your application’s Prosper rating.

Prosper Rating

Prosper’s propriety system gives each application a rating. This rating allows potential investors to evaluate the loan’s potential risk for the borrower to default on the loan.

The most favorable of borrowers will receive an AA rating. The lowest a borrower can receive is HR. In between these two are ratings there are 26 different levels.

Each one of these levels has a different pricing structure based on the loan terms and the borrower’s history with Prosper. The lowest interest rate would be an AA rating on a three-year term at 5.32%.

The highest rate would be on an HR loan with a three-year term at an interest rate of 35.97%. The biggest amount of risk for investors would be an HR rating on a five-year loan.

Verification Stage

This indicates to lenders at what stage the borrower is in for completing their loan application process. It does not show the level of risk, but rather the likelihood of the loan agreement being created.

For example, a loan that is in Verification Stage 3 is far along in the process. This loan will likely result in the completion of the agreement and loan origination.

Qualify to Borrow

The minimum score you need is a 640. The average credit score is a 710 though.

You will need to have at least two years of credit history. The average credit history is eleven years.

There is no required minimum income amount. The average income of borrowers though is $89,000.

Borrowers can have a maximum debt-to-income ratio of 50%. This is excluding a mortgage you may have.

Qualify to Invest

For those that will be investing in your loans, the requirements are not as stringent. Investors must be at least eighteen years old and have a valid social security number.

Other requirements are imposed by the state where the investor resides. These requirements are usually for minimum income and total net worth.

The typical minimum income requirement is $70,000 and a net worth of $250,000. States also limit investors to notes no more than 10% of the investors net worth.

The Pros

Once you are approved for your loan, the funds are deposited directly into your bank account. This means you can have your loan funds in as little as one to three days.

Loan Purpose Freedom

You have the freedom to use your loan money for almost anything you want. This could include debt consolidation, medical expenses, home improvement and more.

You Get Immediate Results

Unlike traditional lending where you fill out an application and wait, Prosper tells you immediately. Rates are generated immediately through their propriety algorithm and based on the information you provide in your application.

Early Payoffs

You can pay off your loan early. There are no pre-payment penalties.

No Hard Credit Check

Unlike traditional lenders, Proser doesn’t do a hard pull on your credit score and history. This means that checking your rate won’t affect your credit score.

This allows you to apply for and list your loan for potential investors without risking a drop in your credit score. Once your loan is approved, a hard pull on your credit will occur.

Their Reputation

Prosper has developed a reputation for being trustworthy and reliable in vetting borrowers for investors. Because they were the first, they have the longest history in this style of lending.

Personalizes the Lending Process

Often in the lending process, you become just another application with numbers representing your creditworthiness. With Prosper, you have the opportunity to put a face to your application, literally.

With the peer to peer process, you can appeal to potential investors. This gives you the opportunity to explain your particular situation and why you deserve your loan.

When your loan is listed in the marketplace, you have the opportunity to fill out a profile. This is where you can add a picture, a little about you, your situation, why you need the loan, and an explanation of your credit history.

The Cons

The requirements for lending through Prosper are high. This greatly limits those who can take advantage of Prosper’s services.

Origination Fees

Borrowers are responsible for paying an origination fee. This fee is taken out of the loan proceeds and is anywhere from 2.4% and 5%.

If you have a low-risk determination from Prosper at an AA rating, you will have an origination fee of 1%-2% on a three loan. A five-year loan will be 3%.

A risk grade level of A will be at 4% for a three-year loan and 5% for a five-year loan. B level borrowers will pay 5% for both three and five-year loans.

Borrowers who are a risk grade of C and lower to HR will pay a 5% origination fee on their loan. The idea is that the riskier the borrower, the more fees they will pay.

Not Flexible

With traditional lenders you can often adjust your scheduled payment date, this is not the case with Prosper. You will also be charged a late fee if you miss your payment due date.

If you choose to do auto payment, your monthly payment will be taken on the first of each month. This doesn’t always work well with when someone gets paid.

You also cannot choose a repayment term other than three or five years. This is limiting when it comes to adjusting your monthly payment amount to an affordable number.

Investors Provide the Funding

Once Prosper verifies your identity and pre-qualifies you, you’ll need to make a listing. For some this can be an invasive process, opening up and explaining to total strangers why you want the money and how you plan to pay it back.

If you have a strong Prosper Rating, you could be funded very quickly. If you have a less than desirable Prosper Rating, it may take a while, if at all, to get funded.

The risk for a borrower is that they may not get their loan funded. Investors will usually only fund a certain percentage of a loan; this is to reduce risk.

This means borrowers could have many different investors funding their loan. If they don’t get enough investors, then their loan isn’t funded.

The Prosper Loan Reviews

While many people have successfully obtained and repaid their loan with Prosper, many others have experienced trouble. You will readily find negative Prosper reviews of individuals who have struggled.

The biggest issue borrowers have is with miscommunication over how the application process works. The second biggest complaint is how payments and loan payoffs are mishandled.

The Verdict on Prosper

Consider Prosper if you have excellent credit and are looking for a loan that traditional lenders won’t agree to. If you do not have a high credit score and income, prosper is not for you.

You need to be willing to appeal your case to investors. Once your loan is funded, your identity will be verified. The loan funds are delivered in one to three days.

Repaying your loan is easy with payments automatically taken from your account. However, you’ll need to monitor your repayment process closely for potential errors.

Maybe Peer to peer lending is not right for you, check out this other great personal loan option. You can also visit our learning center to learn how to get on top of your finances.