Prosper Review: What You Need to Know Before Borrowing

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Prosper is one of the pioneers of peer-to-peer lending, an online personal loan service which connects credit borrowers with investors who can choose to fund their personal loans.

It’s an excellent option if you have substantial debt, along with a high income (the average for Prosper borrowers is about $89,000). The loans can be used for any purpose, but debt consolidation is a common practice for Prosper clients.

Prosper works well for anyone who can’t get a personal loan from a traditional bank, but wants to avoid the high interest rates offered by credit card companies and payday lenders.

How Does Prosper Work?

Prosper’s typical annual percentage rate (APR) is between 6.95% and 35.99%. There is also an origination fee between 2.4% and 5% taken off the top of the loan. In other words, the amount of money you receive is the amount requested minus the origination fee.

Once approved, the loan amount will arrive at your bank account in 1-3 business days. There’s a monthly repayment schedule that stretches over three to five years (36-to-60 monthly payments).

Prosper loans are generally pursued by consumers with good-to-excellent credit scores. The Prosper credit score minimum standard is 640, but its average is 710.

If you have poor credit, Prosper probably isn’t your best option because it would mean a high interest rate and steep origination fee.

Prosper review

Prosper requirements generally get high marks, but they might not be for everyone. Here are some pros and cons that can clarify the advantages and disadvantages:

Pros

  1. Low Interest Rates: If you have good credit, you should receive a very favorable loan.
  2. Versatility: Both low ($2,000) and high loan amounts ($40,000) are available.
  3. Speed: The money is funded quickly and placed directly into your account.
  4. Consolidation: If you’re looking to consolidate some high interest loans, Prosper is the company for you.
  5. Consumer Friendly: The application process is intuitive and extremely easy to use.

Cons

  1. Origination Fee: It can be higher than competitors. If you borrow $10,000, for instance, you could be charged a 5% origination fee of $500.
  2. No Break on Interest: And using that example, when your loan is funded, the fee is automatically deducted, making for a total loan amount of $9,500. But you are still charged interest on the entire $10,000.
  3. No Flexibility: You CAN’T adjust the terms of your loan with Prosper. Other lenders allow some flexibility.
  4. High Standards: You will need a high credit score to be approved and to get a favorable interest rate.
  5. More Fees: If your monthly payment is more than 15 calendar days late, you pay a $15 late fee or 5% of the unpaid balance, whichever is greater. Also, there is a $15 fee for insufficient funds in your checking account or your account can’t be accessed.

What are Prosper requirements for borrowers?

Prosper loan amounts generally range from $2,000 to $40,000. A minimum credit score of 640 is required, along with a minimum credit history of two years, thoughthe Prosper average is 11 years. The maximum debt-to-income ratio is 50% (excluding mortgage).

You can apply for a loan on Prosper’s web site — www.prosper.com.

The application process will ask for:

  1. Loan amount
  2. Reason for borrowing
  3. Your personal information (address, telephone number, e-mail)
  4. Verifiable income
  5. Employment status
  6. Monthly housing payment

To better qualify applicants, Prosper uses a proprietary risk-rating system that considers hundreds of data points, including credit history. Prosper’s ratings are used by investors to decide whether to fund your loan. If your loan request isn’t funded, your application expires.

Alternatives to Prosper?

If you are turned down by Prosper (or only qualify for a high-interest loan), there are options. Before exploring the alternatives, make sure you presented all the correct information to Prosper. If a negative mark on your credit report was uncovered, it might need investigation.

Debt Management Plan/Credit Counseling — Here’s a great option if you’re denied a Prosper loan. By working with a nonprofit credit counseling agency, you can lower your debt payments (regardless of your credit score). DMP counselors will work with creditors on your behalf to reduce your monthly payment. That service is designed for consumers with unsecured debts such as credit cards, medical bills and student loans.

SoFi — Pretty good choice for new credit borrowers. The APRs are generally manageable (5% to 15%, no origination fee), but there’s a higher threshold for credit scores (660 minimum). Loan amounts are $5,000 to $100,000. The repayment plans range from three to seven years. Typically, the money is available within seven days.

Discover — Here’s another alternative that doesn’t charge an origination fee. The APRs range from 6.99% to 24.99%. Loan amounts are $2,500 to $35,000 and the repayment plans range from three to seven years. In some cases, money can be available as soon as the next day.

Lending Club The nation’s largest online lender for personal loans (more than $35.9-billion in loans since the company was founded in 2007). Investors in Lending Club (not the company itself) make final decisions on whether to lend the money. The APRs range from 5.99% to 35.89% and the repayment plans range from three to five years.

Lending Club vs. Prosper

Many borrowers could find themselves weighing the merits of Prosper and Lending Club, two of the most popular peer-to-peer personal loan lenders.

There are multiple similarities. Both can offer low-interest loans up to $40,000 — usually with a better deal than most banks — and the application process looks the same.

Both have the same bottom line: What is your credit history? How much money do you make?

Both are good alternatives if you need some home improvements and can make the payments, NOT if you’re looking to finance some fluff like vacations, entertainment expenses or other stuff you can’t really afford. It’s all about discipline and using responsibility with your new credit line.

So how do you differentiate between Prosper and Lending Club?

Here are some major differences:

  1. The interest rates could be different, making for a higher monthly payment. Do your homework and comparison shop around.
  2. If your credit history is average — let’s say the score is around 660 — Prosper is more likely to approve your loan. Every loan is assigned a grade — reflecting the borrower’s credit score, annual income and other factors — by Lending Club and Prosper. But Lending Club offers loans to five grades of borrowers, while Prosper offers loans to seven grades of borrowers. Prosper’s criteria is a bit more forgiving. This is the non-rocket science portion of our comparison example. For most borrowers, the more favorable interest rate is the bottom line.
  3. Lending Club can have lower fees. Prosper and Lending Club generally charge an origination fee of 5% when the loan is approved. But if you have excellent credit, Lending Club will charge a fee of just 1%, while Prosper’s reward for excellent credit generally means a fee of 2.4%. So, if you have excellent credit, going with Lending Club can mean some worthwhile savings on the origination fee.
  4. Lending Club offers joint loans (two people together), which could help approval or achieving a lower interest rate if the other party has a better credit history. Prosper does not offer joint loans.
  5. Prosper is faster, generally getting the money in your account by a difference of several days over a similar loan from Lending Club.

Read Debt.org’s review of Lending Club.

What to do if I can’t make my Prosper Payment?

If the borrower is more than 15 days late on a loan, a late fee will be assessed. A collection agency will attempt to collect the funds and credit agencies will be notified. Borrower loans that become more than 120 days overdue will be charged-off and eligible for sale to a debt buyer. A borrower whose loan has been charged-off will never be able to borrow again from Prosper.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

Sources:

  1. Jayakumar, A., and Nicastro, S., (2018, 14 November), Prosper Loans: 2018 Review. Retrieved from: https://www.nerdwallet.com/blog/loans/prosper-personal-loans-review/
  2. Cunningham, S., (2018, 13 August), Lending Club vs. Prosper: 5 Big Differences For Borrowers. Retrieved from: https://www.lendingmemo.com/lending-club-vs-prosper-for-borrowers/
  3. Pritchard, J., (2018, 16 September), Before You Borrow At Prosper. Retrieved from: https://www.thebalance.com/before-you-borrow-at-prosper-com-315590
  4. Weliver, D., (2017, 30 May), Prosper Loans Review: Personal Loans For Any Reason. Retrieved from: https://www.moneyunder30.com/prosper-loans-review