What Is Prosper?
Prosper is a peer-to-peer loan service. People looking for an investment opportunity pool their money to make loans to qualified borrowers, in amounts up to $35,000 at interest rates between 6.05% (6.73% APR) and 30.09% (34.12% APR). The rate depends on credit score, credit history, income and other factors. According to Prosper’s website, repeat borrowers may qualify for discounted rates.
How Prosper Works
1. Apply online. Click any of the large “Check Your Rate” or “Get Rate” buttons that appear throughout the site. Fill in your name, address, birth date, credit score range, annual income, email address and a password. You must check a box authorizing a credit check, even though you haven’t provided your social security number yet.
Using your name, address and birth date, Prosper conducts a “soft pull” on your credit from Experian. According to Prosper, this credit check has no effect whatsoever on your credit score, but provides them with enough information to approve or deny your loan request and display the terms you qualify for.
2. Choose a loan. If you qualify for a loan, Prosper will present several options to choose from. The screen displays the dollar amounts you qualify for, along with the period for repayment, the APR, the interest rate and the monthly payment amount. Click the button to “Get this loan.”
3. Enter your personal details. At this point you’ll need to provide your social security number, contact phone numbers and other information. The website will then present you with a ‘Truth in Lending Disclosure.’ When you click to accept that document, you are accepting the loan.
4. Look for an email in 24 hours. The email will ask for certain documentation to verify your identity and/or income. The required documents vary for each applicant. Most borrowers are asked for a copy of their driver’s license, recent W-2 form and utility bill. Self-employed borrowers will probably need to provide more documentation. In a few rare cases, generally when an error or security alert appears on the credit file, the requested copies must be notarized.
5. Prosper funds your loan. Prosper lists your loan (without your personally identifiable information) on its website and interested investors fund portions of it. The borrower is not involved in this process at all. Currently, all approved loans are fully funded.
6. Look for the money in about 5 days. Prosper deducts the origination fee from your loan and deposits the balance into your bank account.
How Much Does It Cost?
Prosper’s closing fee is 2% to 5%, depending on the applicant, taken right off the top of the loan funds. No other fees apply unless you miss a payment or pay late. There is no penalty for paying the loan off early.
Is Prosper Safe?
Prosper’s website is as secure and legitimate as any other financial website. It has been written up in the New York Times, Wall Street Journal and other major news outlets. Financially, there is virtually no risk to the borrower. The borrower does, however, take on the responsibility of the loan. For investors, the risk is always present that the borrower will default on the loan. Money is loaned at the lender’s risk; Prosper takes its fees upfront and so does not lose money in the case of a default.
Is Prosper A Good Deal?
Consumer reviews are mixed, with disgruntled applicants complaining about poor customer service and a difficult verification process, and happy customers reporting that they sailed through a very short, easy process to exactly the loan they wanted. If you apply, note that the harder it is to verify your financial details, the longer the application process will take. Have your financial paperwork organized before you apply and return the requested documents promptly.
If you’re looking for financing, it’s your job to research the options and choose the best one. Prosper might present a viable alternative to a bank loan, credit card cash advance, collateral loan or other financing option.
I inquired with both Lending Club and Prosper within the last few days. Lending Club offered me $15,000 at 7.69%. Prosper, however, capped my preapproval at $10,000 and at 19.6%. According to their rate sheet, the Prosper loan would incur a 5% origination fee. The Lending Club loan I qualified for comes with a 3% fee. I did not pursue either loan.
In some cases, Prosper will offer financing at a lower interest rate than what a borrower is paying on existing debt, such as credit card accounts. In other cases, Prosper can fulfill a need for money when no one else will offer the loan. The only way to know if Prosper is right for you is to let them do a soft pull on your credit and tell you what kind of loan you’ll qualify for.
Prosper does not make loans to residents of Iowa, Maine or North Dakota. All other U.S. residents are eligible to apply. The minimum credit score to qualify is 640, and the loan amount must be between $2,000 and $35,000.