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Prosper Review: Personal Loans Through Peer-To-Peer Lending

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Getting a personal loan from a bank can be very difficult. You typically have to have great credit, but this isn’t the case for many people. Experian reports that the average American credit score is 687. This is just under the threshold of what’s considered good credit. It’s common for banks and credit unions to deny anyone with that score or lower.

Fortunately, peer-to-peer lending is a very popular alternative for personal loans. Peer-to-peer lending is when borrowers are matched with independent investors. The matching process is done through online platforms, and criteria are not as strict as banks. One of the most highly rated platforms is Prosper.

In this post, you’ll discover exactly why Prosper is such a popular go-to for personal loans.  You can learn about the lending process, pros and cons, fees, and more. Read on to see if Prosper is the right choice for you.

About Prosper

In 2005, Prosper debuted as the first peer-to-peer lending company. The San Francisco based company pairs up borrowers with investors willing to fund personal loans. The platform is not a bank; it’s often described as a financial marketplace. Borrowers and investors alike give Prosper great reviews.

Prosper gives borrowers access to personal loans ranging from $2,000 to $40,000. These loans can be used for any reason – debt consolidation, major purchases, and everything in between. Each loan is funded by many individual investors who chip in $25 or more. A single loan may be funded by dozens or hundreds of investors.

Prosper makes a profit from transaction fees and servicing fees that borrowers and investors pay. These fees typically range from 1 to 5 percent.

For example, Prosper gets a 1% servicing fee from investors for processing payments. This business model has served them well, and they’re considered one of the best peer-to-peer lending platforms.

As of 2018, Prosper has facilitated over $13 billion in personal loans for over 857,000 borrowers. The company has received positive media coverage from Forbes, Wall Street Journal, NPR, Bloomberg Businessweek, and other outlets.

Prosper continues to expand and will offer home equity lines of credit (HELOC) in 2019.

Prosper Pros And Cons

Finding feedback about Prosper is easy, but there’s a ton of information out there. There are nearly 1.2 million Google results for Prosper loans reviews. Fortunately, you don’t have to spend hours doing research. I read feedback from several dozen resources and noted the most popular pros and cons. Below you’ll find common feedback from Prosper borrowers.

Pros

  • Many reviews say the approval process is easy.
  • Interest rates start at just 6.95% APR.
  • Information about the loan process is straightforward and thorough.
  • Prosper has a very detailed FAQ that answers dozens of questions.
  • Prosper offers better interest rates than many other peer-to-peer lending platforms.
  • Investopedia ranks Prosper as one of the best peer-to-peer lending sites.
  • Loans are available for people who often don’t qualify for bank loans.
  • CreditKarma users give Prosper a 4.7 out of 5-star rating based on over 650 reviews.
  • CreditKarma users also give Prosper’s application process and customer support 4.5 out of 5 stars.
  • Comparisons.org reports that 9 out of 10 people would recommend Prosper to their friends or family members.
  • Checking your rate for a potential loan won’t hurt your credit score.
  • You can pay off your loan early with zero penalties.
  • Many reviews say that Prosper has excellent customer service.
  • You get to explain to potential investors why you should be considered for a loan.
  • Money Under 30 also ranks Prosper among the best peer-to-peer lending sites.
  • The auction-style lending process may lead to a lower interest rate.
  • Prosper says that borrowers typically get their loan within five days.

Cons

  • Interest rates go up to 35.99% APR for less qualified borrowers.
  • You can only get a three-year or five-year personal loan.
  • It can take up to 14 days for your loan to originate.
  • You must have a credit score of 640 or higher.
  • You are charged a one-time origination fee that equals 2.4% to 5% of your loan amount.
  • If investors don’t commit to your loan within 14 days of listing it, you have to create a new listing and try again.

Prosper has a fair balance of pros and cons to consider. I noted that the cons are pretty typical for any peer-to-peer lending site. High-interest rates and fees are the price borrowers pay for getting access to personal loans. For many people, the rates and fees are worth it because banks and credit unions won’t lend to them at all.

The pros are also pretty standard, but a few really stand out to me. Prosper has great feedback from borrowers, lenders, financial websites, and more. I also like that you get to plead your case to lenders. This gives you the opportunity to explain any bad credit history and why you should get a loan. Banks and other peer-to-peer lending sites don’t offer this feature. Prosper also has interest rates that are lower than or equal to their competitors.

Overall, I think Prosper is worth considering if you’re tired of banks rejecting you. It’s also a good option if you’ve got fair to good credit but still need to work on it. Checking your loan rate is free and fast, and it doesn’t negatively impact your credit. At the very least, consider checking out what Prosper can offer you.

What Types Of Loans Does Prosper Offer?

Prosper offers unsecured personal loans to borrowers. An unsecured loan is a loan that isn’t backed up with collateral. Personal loans fall into this category, and so do credit cards and student loans. Secured loans allow the lender to take property if the borrower fails to make payments. Auto loans are a good example of secured loans.

You can apply for a personal loan for any reason. Many people use personal loans for debt consolidation. Some use them for renovation projects or sudden financial obstacles. You can even use your loan to take a vacation or for luxury purchases. With Prosper, it truly doesn’t matter what you plan to use the money for.

Prosper offers three-year (36 months) loans and five-year (60 months) loans. This is consistent with the average personal loan length, which ranges from 12 to 60 months. You are not penalized if you pay off your loan early. This is a great feature that Prosper offers. In many cases, borrowers have to pay a penalty fee for paying off personal loans early.

If you qualify, Prosper will approve you for a personal loan of at least $2,000. However, Prosper offers personal loans up to $40,000. The maximum loan amount depends on your Prosper rating. Prosper’s FAQ portal notes that the maximum loan amount may differ in rare cases.

Lastly, Prosper loans are fixed-rate loans and not variable rate loans. This means that your interest rate will never change, so you know exactly how much to pay per month. Variable rate loans have interest rates that fluctuate, which can result in higher monthly payments for borrowers. Many financial authorities consider fixed-rate loans to be the best option for borrowers.

Prosper Loan Requirements For Borrowers

To qualify for a Prosper loan, borrowers need to meet a few requirements. The requirements are fairly easy to meet even if you don’t have great credit. Prosper says that all borrowers must meet the following minimum criteria:

  • You must have a minimum credit score of 640.
  • You must have at least three open trades on your credit report. Open trades are accounts such as credit cards, auto loans, and so on.
  • You must have less than seven inquiries on your credit reports within the last six months.
  • You must not have filed for bankruptcy within the last 12 months.
  • Your debt to income (DTI) ratio must be less than 50%.
  • You must be at least 18 years old.
  • You must have a valid Social Security Number.
  • You must have a valid bank account.
  • You must report income that is greater than $0.

Prosper pulls your TransUnion credit report to ensure you meet the criteria. You can view your TransUnion credit score for free via TransUnion, CreditKarma, and Credit Sesame. If you have a credit card, your financial institution may also list your TransUnion score for free. If you want detailed information, you can request your full credit report from the three major bureaus via Annual Credit Report.

Applying For A Prosper Loan

Many Prosper reviews rave about the easy and fast application process. I looked into each step, and it does seem fairly quick and simple. Prosper states that most borrowers get their loans within five days of creating a loan request. There are a few steps you need to take before you can submit a request. Here’s what you need to do to get a Prosper loan.

  1. Pre-application. Go to the Prosper website to complete the pre-application process. You’ll provide information about your credit and the loan amount you want. If Prosper doesn’t think you’ll be approved for a loan, the process ends here. If they do think you’re eligible, you’ll see a range of estimated interest rates. The exact rate for your loan may vary a bit, but reviews say the estimates are pretty accurate.
  2. Accept your loan offer. If you are happy with the potential offers, you accept them at this point. From here, you start the process of getting access to a loan.
  3. Submit documents for verification. You’ll be asked to submit various documents for verification. This can be done through your Prosper account. For example, you may need to fax your driver’s license, proof of address, and similar information.
  4. Create a loan request and profile. Fill out your Prosper borrower profile with the required details. Then you’ll create your loan request. This is where you state how much you’d like to borrow and why you’re a good candidate. Lenders see your loan request along with your Prosper rating. You can read more information about your Prosper rating in this post.
  5. Wait for lenders to fund your loan. Lenders have up to 14 days to fund your loan. However, it’s common for loans to be funded much sooner than that.
  6. Submit more verification. This step is based on user reviews. Many Prosper borrowers say that they had to submit more verification once their loans were funded. The Prosper FAQ portal thoroughly covers the verification process.
  7. Receive your loan. Once your verification is complete, your loan will be transferred to you via direct deposit. Prosper states that it typically takes 1 to 3 business days for this to happen. You will receive the loan amount minus the origination fee. You can read more about the origination fee below.

As you can see, the whole process is fairly straightforward. Prosper is well-known for their quality customer service, so it’s easy to get help if you need it. If your loan request isn’t funded by investors, your application expires. This means you’ll need to start over if you want to continue seeking a Prosper loan.

What Are Prosper Loan Ratings?

Lenders are taking a risk when they invest in personal loans. That’s why Prosper uses a rating system to determine a borrower’s risk level. When you apply for a personal loan, Prosper assigns you a rating. Ratings come in the form of letter grades – AA, A, B, C, D, E, and HR. AA is the best rating, and HR (high risk) is the worst. Your rating determines the annual percentage rate (APR) you will pay.

Investors can see your Prosper rating when viewing your loan request. This helps them decide whether or not they want to fund your loan. Borrowers with AA are considered very safe and likely to pay back their loan responsibly. Borrowers with HR are considered the least likely to pay back their loan responsibly. But it’s worth noting that a poor Prosper rating doesn’t mean you won’t get a loan.

Investors often take risks on lower-rated borrowers because of the potential return on investment (ROI). For example, an A-rated borrower may pay an APR of 6%. This borrower is a safe bet, but the investors get a low return due to the APR. A borrower with an HR rating may pay an APR of more than 30%. If this borrower pays back their loan, the investors get a much higher ROI.

Ratings are based on numerous statistics and the exact algorithm isn’t disclosed. However, there are some common statistics used for most P2P grading systems. Most of them are based on your credit report. The following factors may impact your Prosper rating:

  • Your debt to income ratio.
  • Your credit card utilization.
  • The number of inquiries on your credit report.
  • The number of delinquent accounts you have.
  • Your recently opened trades.

These are only a few examples. Prosper states that they use hundreds of data points to determine ratings. This ensures that the grading system is as accurate and consistent as possible.

Fees For A Prosper Loan

Like other loan companies and financial institutions, Prosper charges a few different fees. The origination fee is the only one you are technically required to pay. If you responsibly make your monthly payments, you likely won’t incur the other fees.

  • Origination Fee – Prosper charges a one-time, non-refundable origination fee between 2.4% and 5% of your loan amount. This fee is deducted from the loan before you receive it. Your origination fee is based on your Prosper rating.
  • Late Fee – If you do not make your monthly payment within 15 days of the due date, Prosper will charge you a late fee of $15 or 5% of your monthly payment amount. You will be charged whichever amount is greater.
  • Insufficient Funds Fee – If your payment fails due to insufficient funds in your bank account, you will be charged a $15 fee.

These fees are pretty straightforward. You’ll never be penalized for making monthly payments early or paying off your loan early. The origination fee is easy to calculate ahead of time. Because it’s deducted from your loan amount, you don’t actually have to pay anything out of pocket.

Prosper Approval Tips For Borrowers

While doing research for this review, I found many Prosper loan approval tips. These points come from financial websites, former and current Prosper borrowers, and other resources. Use the following information to boost your chances of approval:

  • Be completely honest. Don’t lie or create a false story for your loan listing. Investors are familiar with loan listings, and it’s likely they will see through dishonesty.
  • Advertise yourself to investors. Sell yourself in your loan listing, but don’t seek out sympathy. Include positive information about yourself. For example, mention organizations you belong to or hobbies you have. This can make you seem likable and may help investors see you as a genuine person.  
  • Explain your credit history. Provide straightforward info about any negative credit history. For example, state that you had emergency medical expenses or went through short-term unemployment. However, make sure not to overdo it by justifying every blemish on your credit report. Just keep it simple and factual.
  • Add a photo to your profile. Adding a photo to your profile is optional, but it can make you more appealing to investors. When they can put a face to a loan listing, the listing seems more personable.
  • Describe your job on your profile. List your job title, your salary, and a brief explanation of what you do. This may reassure investors that you have a reliable income.
  • Think like an investor. Put yourself in the shoes of Prosper investors. What makes a borrower trustworthy? What makes a borrower worth the risk? You can easily find tips for P2P investors online, so take time to see things from their point of view.

Final Thoughts

If you need a personal loan, Prosper is a reputable peer-to-peer lending option to consider. You can request a loan for any reason, and you don’t need spotless credit history. Prosper gives you the opportunity to explain any negative credit factors. You get to highlight the reasons why you are worth investing in. All of these unique factors set Prosper apart from other lending options.

Frugal For Less features many helpful posts about improving your finances. Some great examples are 9 Mistakes You’re Making Paying Off Debt and 11 Ways To Organize Your Personal Finances. Read these two articles for detailed information, great resources, and much more.

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