Prosper Loans and Peer to Peer Lending Reviews - Can You Really Get a Loan?
What is with all this hype regarding Prosper.com and other peer to peer lending networks? Can you really get a personal loan at a reasonable rate from a group of complete strangers? Well I will try to explain all you'll need to know and hopefully give you enough insights into the process and obstacles, so you can decide if this is something you might be interested in exploring further for your borrowing or lending needs. As a side note before I start reviewing Prosper and others alike are sometimes referred to as Peer to Peer Loans, p2p or social lending platforms. So if I refer to any of these in my review below, you'll understand the reference.
Let me start off by saying that I made this review for a few reasons but mainly it's because I have personally used this program and feel that my experience in the lending community may shed a little light for some folks who aren't so familiar with the process and who might be hesitant in diving in head first. Hopefully, after reading this, you'll have a great understanding and be able to navigate these platforms with ease. I will share some of my pitfalls and some of my successes to ultimately give you the information you need for the best possible chance of securing some money.
Here is a little background about myself. I have been part of the lending community for well over 12 years now. I have worked in all aspects of lending, everything from Mortgages, equipment leasing to personal loans. Currently I am working as a broker for a few banks who offer unsecured loans for businesses as well as personal loans. So once I heard about the social lending marketplace from a colleague of mine, I had to check it out for myself. Once I went through the process I quickly realized that this could be a great alternative for some of my own clients. In today's lending environment traditional banks have certain guidelines that they must follow and a majority of my clients simply don't fit within those guidelines. This is one of the main reasons that social lending has become a great opportunity and why I recommend it to some of my clientele.
How Does Prosper and Other Peer to Peer Lending Marketplaces Work
In its simplest form, it's a marketplace where people looking for money (borrowers) and people looking to invest (lenders) are all connected via an online platform. If you're looking for a lend you would go to Prosper.com fill out a basic application, post your requirements (i.e. loan amount, what you will be using the money for, etc) and once enough investors agree to lend you the money, viola you get a check. Now you will need to pay this money back of course and for the most part it will be in the form of a fixed amount paid monthly, which I will discuss a little later in more detail.
Now you may be thinking wow, I just post my requirements and some stranger will give me the money. Technically yes but don't expect it to come from one person or happen within a blink of an eye. Let's say you submit a request for $5000 don't expect the entire amount coming from one source. On occasion this may happen, however it's very uncommon. From a lenders standpoint they want to make sure that they diversify their funds and risk. The main reason is if the borrower defaults on the loan they won't lose a large sum of money all at once. Lenders don't like to place all their eggs in one basket and then lose the whole basket. What normally happens is that you'll receive many bids from various investors. The amount each investor will bid on your listing depends on their personal risk threshold. You can expect to see amounts between $50 and $500 on average. What I have noticed is that there will be many $50 bids and some scattered $250 bids. This will of course vary depending on the loan amount that you are requesting. My loan was only for $5000 so this is why I mainly had the majority of bids right around the $50 to $100 mark. Or it could have been that my listing was just not strong enough and the investors felt that there was a greater risk of lending to me.
I will mention that the application process and online navigation of Prosper's website was really quite easy to get started. So let's recap the process from a borrowing standpoint.
1. Create a loan listing
2. Investors will then commit funds to your listing.
3. You receive your money
4. Set up monthly payments to pay back the loan
Now let's get into some more specific details regarding interest rates and loan terms you can expect.
Alternatives - If You Need More Than $25,000 Where Can You Go?
One of the main complaints regarding p2p marketplaces is their max loan amount which for most companies is right around $25,000. Well, what are you to do if you need more money? I have listed some sources that are highly recommended.
Unsecured Business Loans
Small Business Loans
Prosper Loan Terms Review
According to Prosper's website, they are currently offering three different options for the term of your loan. They have a 1, 3 and 5 year terms. Unlike some banks and unsecured loan options out there, prosper allows you the ability to pay off your loan sooner than the chosen term with no pre payment penalties. I have attached a table of the loan terms below. As you can see the terms are broken down according to your rating (which is established after you fill out the application and provide supporting documentation) and loan amount.
Your interest rate will vary depending on a few factors. These factors include your “Prosper Rating”, economic conditions, loan terms and the competitive lending environment at any given time. They do post their current rates on their website so make sure to check it out before applying. First let’s look at the rating Prosper gives you. In a nutshell this factor reflects your credit score as well as your debt to income ratio. Although other factors are involved the “Prosper Rating” is their proprietary rating system. They will look at your profile and then assign you a rating which looks something like this AA,A,B,C,D,E and HR which stands for high risk. As you probably have already guessed the better your rating the better your interest rate will be. Don’t get discouraged if you fall into the “High Risk” category. Yes it will be tougher to get your loan but I have seen many people get funded with an HR rating. You will be expected to pay a higher rate, however it could be well worth it. Visit their website to check on rates.
Prosper Loan Types
There are many different ways you can use the money you receive from investors however they are broken down into several different types. When you create your listing you will choose the purpose of your loan. Here are some of the different options you can choose from: debt consolidations loans, home improvement loans, short term & bridge loans, auto, small business loans, baby adoption, engagement ring financing, weddings, friends and family, green loan, and military. Ultimately the investors want to be sure that they are lending you their money for the purpose you state. With that being said it's my strong recommendation that you be as honest and truthful as possible in your listing. Make sure you'll be using the money for what you say it will be used for.
Is Prosper legit?
With over 1.3 mil members and over $364 million in funded loans I would say yes.
A Little Prosper.com Background
Launched in 2006 Prosper is headquartered in San Francisco, California and is headed up by their CEO Dawn Lepore and was cofounder Chris Larsen. Mrs. Lepore was the former CEO of drugstore.com and Mr. Larsen had also cofounded E-Loan. They are the very first peer to peer lending marketplace and currently have more than 1,390,000 and have funded over $364 million dollars in loans.
Pros and Cons to Prosper.com for Borrowers
Let’s start off with some of the pros
- Access to money and credit without having to go to the bank or insanely high interest loan companies
- Easy to use online platform walks you step by step when filling out your application.
- Bad credit loans available albeit with a little higher rate but better then a decline from a bank.
- Entire process is pretty easy and much less of a hassle then a traditional loan. Less required documentation in most cases.
- If you have bad credit you can explain what happened and why. This would be irrelevant to a traditional bank as all they look at is your profile.
Now Some Cons
- Loan terms are usually short term and if you want to go to a 5 year term the rate increases quite a bit.
- If you have an A+ credit profile you may want to seek out some traditional sources just to make sure the rates are comparable. Even though prosper has great starting rates, a bank might be a little better for a certain type of borrower.
- Takes some time if you are looking for a large amount. You will need a lot of people bidding in order to secure a large sum.
- You are restricted to only $25,000 so if you are looking for more or need more then you will need to seek out some other sources.
- If you are self-employed and don’t show much income it’s going to be very tough getting funded via prosper. With that said, it will be tough no matter where you go in today’s credit crunch, no such thing as a stated program. At least I don’t have a source for one right now.
Overall in my opinion, the pros far outweigh the cons. With that said it really does depend on your personal situation, as with everything there is no one size fits all especially when it comes to money and a person's financial plan.
Some Tips I Recommend for Prosper.com Borrowers
- Read: Prosper offers forums and tutorials on their website. This will give you a good start in understanding what lenders are looking for.
- Think Like a Lender: Remember that this is not a bank, so you should have the mindset of the lender. If you were to give your hard earned money to someone what would you like to see?
- Don’t Lie: Be truthful, even if your past hasn’t been so peachy. You want to be upfront about everything as people are more willing to lend you money if they can relate. If your credit is not perfect explain what happened and how you plan on getting back on track.
- Be Explicit: You want to describe what you will be using the money for in great detail. Be as descriptive as possible so the lender will have no doubt about where their money is going.
- Expectations: Keep them in check and don’t expect to get a $50,000 loan if you have a 520 FICO and only make $32,000 per year. Prosper will calculate your Debt to Income ratio which I will explain later but just understand that if you make $2000 per month and your monthly expenses are $1000 per month you have a DTI ratio of 50%.
- Spell Check: Make sure your listing has no grammatical error or misspellings. This shows a careless approach to potential lenders and they may disregard your listing just for that reason alone.
- Questions: Many lenders may ask you questions and or ask for more information in order to help them make a decision. Make sure you answer these questions completely and quickly.
- Join a Group: There are many groups in the prosper marketplace that you can join in order to increase your chances of getting a loan. I will caution you to make sure you do your research on these groups as sometimes it can actually hurt and not help your chances.
- Don’t Spam: Don’t try and contact investors privately.
- Verify: You will need to verify your information. Once you have completed the application Prosper will make a small deposit to your bank account in order to verify that it’s your account.
Other Peer To Peer Lenders
Now although I have not personally tried any of the other social lending sites, I would assume that they are fairly similar in structure and overall process. I do know that, Kiva.com is structured a little differently and is geared towards micro loans that are mainly for international borrowers in places all around the world. It's more of a niche type lending platform. Their mission is to alleviate poverty in the world by making loans and giving people in poverty stricken places a chance for a better life and opportunity.
Peer to Peer Lending and Where It Goes From Here
As mentioned earlier, Prosper was founded in 2006 and was the very first company to pioneer this type of lending platform. For a new concept and technology that has only been around 6 years there are those who are very skeptic. Questions are raised if this is for real and could this be the new future of lending? Well, I don't have a crystal ball, but it's my guess that this is something that's not going to go away any time soon. There are some really great benefits platforms like these present. Not only from a borrowing standpoint but from an investors as well. Where else can an investor get double digit returns? Surely not in their bank CD accounts. Another sign that I believe supports my notion of p2p lending sticking around is that now some of the big names in Wall Street are jumping aboard these companies. In May of 2012 it was reported that p2p lending has hit $1 billion dollars.
Prosper.com on Fox Business News
FOX National News profiles Prosper on how it is helping entrepreneurs get access to affordable capital and investors get access to high-yield returns.
Peer to Peer Lending on WNBC New York
A nice little report from a local news station, showcasing a real borrower using the lending platform.
Prosper Scam - Could it really be a scam?
I've found that from time to time while you search for Prosper on Google, a related search comes up below for Prosper Scam. When I looked into further I found that there were approximately 1,300 people per month searching for this particular term.
That's a descent size number, so why do people think this? Is there really a Prosper scam you need to know about?
NO. Sorry for yelling but many internet marketers out there will use the terminology for the word "scam" in their titles of their web pages, because it draws a high number of searches and curiosity. This allows them to gain visitors and spammy ad views for crap unrelated to the information a person is really looking for. Once that search term registers into the "related searches" drop down menu, it naturally gets them clicks & views, and drives it up in the list.
As a potential customer, feel at ease in knowing that Prosper scam, is just a confusing malfunction in search technology that generates a lot of misdirected consideration.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Prosper Reviews & Comments - Share Your Experience or Thoughts
TA on December 27, 2018:
Why would I have to enter my personal banking information, user ID and password to my account?
Timothy C. Lear on October 26, 2017:
My name is Tim. I'm 30 an my wife is 31 we have to awesome kids. We lost both our Mom's last year. My mom nor her mom had life insurance or nothing. They where both under 50 years of age. So we put up everything we had land mobile home. So for 8,000 we are loosing our only place to live. Our mom's are gone. Never had a dad. We both work but we was taking care of them an paying out of pocket for there needs until they got a check but they past before they got them started good. I can show both the death certificates for proof. Even with both of us working all the time we can't catch up. This is my last chance at any hope I got. Please someone see this an point me in the rite directions thanks.
Micheal Paul on April 15, 2017:
They are charging outrageous 35% APR!!
Jim on January 09, 2016:
Easy to borrow, but terrible customer service. In the process of setting up my loan, I’m sure I asked for the due date to be the 15th of each month, since that’s when I get paid. Instead they set it up for the 14th, which means they were drawing my payment out of my bank account on the very last day before I got paid. Sure, it’s easy to say I should keep more money in my account, but I’m not the only one who gets a little tight right before payday.
Anyway, it should be a simple situation to fix — calculate a little extra interest for one day and move the payment date. Nope — they refused. So I revoked their authorization to draft from my account, and called to make sure they got the message. Their rep wanted to argue with me saying their website had no functionality for me to send them a message. Refused to let me talk to a supervisor. I wasn’t angry when I called in, but she sure put a bad taste in my mouth about this company. Never had any problems with Lending Club, though, so what I’ll do now is simply pay off this loan and never deal with Prosper again.
Angie on August 20, 2015:
My husband and I have been working for over 40 years and seem to find ourselves overwhelmed right now with too many credit cards. Is getting one large loan and paying those off difficult. We have never been late nor defaulted on a debt. How can we explain we are loan worthy to payoff one bill as opposed to 5 or 6?
Cynthia Braun on August 10, 2015:
We just had the run around for a good two weeks with wanting documents which we constantly sent. Then in the end because my has didn't know our e mail address or how to do a computer. Which I do we were turned down. The girl was always very rude on the phone. I will never give their name to anyone
Johnc170 on April 13, 2015:
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Jennifer Shaw on March 26, 2015:
Borrower beware! Prosper is unreliable at updating their records and credit reporting agencies. I phoned Prosper and made a manual payment to pay off the remainder of my balance owed for a loan. Three months later my credit report shows that the remaining balance is delinquent! When I log into my prosper account, my account STILL shows the amount past due plus interest is owed. After calling them and fighting with them, the only response I got was an email confirming that I paid off the final balance. My credit report still has not been updated from this error since 2012!
stucker1 on January 08, 2014:
i had a great experience with this company. i was so stressed over credit card debt. and no bank would consolidate them for me. prosper is giving me a second chance. i would definitely recommend them. everyone deserves a second chance. sincerely sher
anonymous on July 24, 2013:
I am just finishing with two loans from Prosper one for 10K and one for 7,200. I can really say this was a "God send" for me. I had high limit credit cards with high balances and this was the best answer to getting rid of those cards and getting the debit paid off. I was in a high risk category with no collateral to speak of and beyond the deb ratio for personal loan or a low interest card with the amount I needed. I loved the convenience of the auto pay through my bank too. The most important part is I never added more credit cards to my debt. I think had I not gotten these loans, I'd be sitting making the minimum payment with no chance of ever getting ahead. Thanks to all the investors for taking the risk on me.
anonymous on July 18, 2013:
They play the same document runaround with lenders too. It's a wonder they stay in business. I provided a passport for ID. Every time I tried to lend I would get error messages prompting me to fax identification. They emailed me a lender services #. I called and had to wait through 10 prompts before finally getting the âto speak to a representativeâ then was told its not good enough. All of my account information is the same state and the funding bank is the same state. There are better companies for this service. They stole time from my life! I am sure they are profiting off the information they have already collected on me. I was up and running with Lendingclub.com immediately. Cancelled Prosper.com and never looked back.
lsfinancial (author) on March 04, 2013:
@opatoday: Thank you for reading. Hope you got some useful information.
lsfinancial (author) on March 04, 2013:
@anonymous: Yes only one payment is required which is a very nice thing
opatoday on February 23, 2013:
Great info Thank you
anonymous on February 10, 2013:
So if Im funded by multiple lenders, do i still only make one payment a month?
anonymous on January 06, 2013:
It would really be helpful if articles like this included the date is was written.
TheSpaniard LM on November 03, 2012:
Great lens, lots of good information here. Glad to see someone else getting the word out about Prosper. I have only been a lender for a few months now but so far I love it!
lsfinancial (author) on November 01, 2012:
@mstcourtjester: Thanks for the kind words. Prosper is a great place to diversify.
mstcourtjester on October 31, 2012:
Very good and proffessional looking lens. I have been using Prosper.com since 2007 with an average return on my loans of 5.55% as of 10-31-2012. I have had a few defaults, but overall I am up in returns. I like it as a tool of diversification. Have a great day and good luck here at Squidoo!!! Isn't passive income great? :)
Uprofit on September 11, 2012:
Hi lsfinancial, talking about educational loans, have you taken a look at the Power Results Academy yet. I,ve been following this guy Hitesh an Ex students progress. Doing pretty well may I add.
anonymous on August 08, 2012:
Very good information on a relatively unknown method for borrowing money. Very good lens.
lsfinancial (author) on July 26, 2012:
@anooptu: Hey Anoopkakka the nice thing about prosper is that you can apply for a personal loan and use it as a student loan. However if you are looking into a traditional student loan there are a few options. The first place I would start is http://www.staffordloan.com this is a federal student loan option. If you want to go with a private loan option i would suggest checking out Wells Fargo https://www.wellsfargo.com/student
anooptu on July 25, 2012:
can you share details about educational loans...?