- No cost to apply or post a loan listing
- No prepayment or early payoff penalties
- Fixed interest rates between 5.99% and 36% APR
- Requires no collateral, making it easier to obtain a loan
- Short turnaround time after submitting an application
- All legal documents posted on Prosper’s website
- Small loan amounts
- 640 minimum credit score required for borrowers
- Only 3-year or 5-year loan term lengths available
- Closing fee of 1–3% of the loan amount (taken from the funds before they are distributed)
- Not available in five states (Vermont, Pennsylvania, Iowa, Maine, North Dakota)
- $15 fee charged for failed or late payments, as well as for payments made by check
Borrowing: How it works
Because Prosper uses a P2P platform, the process for obtaining a loan has a few more steps than a traditional loan:
- Fill out an online application. Prosper reviews your information and if you qualify for a loan, they assign you a Prosper Rating and offer some loan term options.
- Pick from your loan term options (loan amount, interest rate, 3- or 5-year repayment length) and fill out the paperwork.
- Create a loan listing on Prosper’s marketplace. Investors will see it and will invest in your loan.
- Submit documentation to verify your information. Your money will then be deposited to your bank minus the closing fee of 1% to 3% of the total loan amount.
Quick turnaround time
The turnaround time from submitting an online application to receiving the funds can be as short as 3 to 5 business days, depending on how quickly you send in your paperwork. It will also depend on how quickly your loan is funded, though that process usually takes only a few hours after a listing is posted.
Bad credit won’t cut it
Your credit profile is going to be pretty important. The required 640 minimum credit score is fairly typical for a lending company, though it is on the higher end of the scale compared to most competitors. Your credit score will determine your Prosper Rating, which ranges from AA to HR (high risk). Borrowers with an AA or A rating will qualify for that 5.99% interest rate on higher loan amounts; borrowers who fall into the mid-range ratings will be offered higher interest rates on lower loan amounts.
The possibilities are (nearly) endless
The $35,000 cap on loan amounts is pretty typical for personal loan companies, but it might not be enough for small businesses or startup costs. However, Prosper loans can be used for almost any financial need, including the following:
- Debt consolidation
- Home improvement, including installing “green” technology
- Household expenses, taxes, large purchases, and medical/dental costs
- Cars and other vehicles, either purchasing or refinancing
- Small businesses
- Baby and adoption
- Special occasions such as engagements, weddings, parties, graduations, vacations, etc.
The only things loans cannot be used for are post-secondary education expenses like college tuition, fees, required equipment or supplies, or room and board.
How does customer service measure up?
Prosper’s customer service representatives are easy to reach by phone (though not by email unless you are already a registered member of the website) and, in our experience, are friendly, patient, and helpful without being pushy or “salesy.” However, several negative online reviews suggest that their customer service agents can be persistent and even aggressive if you take out a loan and then miss payments, and they are not able to be flexible if your circumstances change (e.g., if you lose your job).
Bottom line for borrowers
Prosper does not charge any application fees so applying for a loan won’t cost you anything.The P2P platform offers an opportunity to get a personal loan without the hassle of providing collateral and the long waiting times associated with going to a traditional lender. Prosper is a solid choice for online, personal loans, and if you have good credit, you are likely to get funded quickly and find great loan terms. However, if your credit history is just okay or poor, you may end up with loan terms that aren’t much better than you’d get from a credit card.
Prosper for Investors
- No cost and no annual fees to become an investor
- Loan investments as small as $25
- No limit, high or low, to number of investments you can make
- Investing options available for financial professionals
- Prosper Ratings range (AA to HR) to diversify the types of loans you invest in to spread out risks and minimizes losses
- Option to choose which loans to invest in individually, or choose the Quick Invest option that allows you to create risk criteria to invest in a group of loans all at once
- Average return rate of 5–9%
- A 1% fee is taken from all of the payments investors receive
- All loans are unsecured (no collateral required) and high-risk
- The minimum credit score for borrowers of 640 is lower than a few competitor’s
- Residents of certain states are not able to become investors; a few other states that allow it have additional requirements investors must meet
Will you see returns?
There is no minimum number of required investments; however, Prosper recommends investing in at least 100 notes across a diverse range of loan types to offset any losses. If you’ve got 100 notes across a range of loan types with varying degrees of risk, you will still see returns even if some of the borrowers default on their loans. This means that at $25 per note, you’ve got to start with at least $2,500 to see these types of returns.
Be aware of state regulations
The biggest impediment to becoming an investor is the state you live in. Because each state has different regulations, some states have specific income requirements for potential investors, and peer-to-peer investing is not an option at all in the following states:
If you’re looking for a solid investment option, Prosper has a record of paying out millions of dollars to their investors each year. While unsecured personal loans come with inherent risks, and every investor should be ready for some loans to default, lending on a large number of loans and having a diverse portfolio should minimize any losses. There is a 1% fee that is taken out of payments, but it is factored into return rates. Investors generally see a 5–9% return, which is significantly higher than the interest from a typical savings account and doesn’t fluctuate with the stock market.
While there are a fair number of negative reviews for Prosper online, the positive reviews outweigh the negative ones. Most of the positive reviews focus on the quick application process and good rates, while most of the negative reviews focus on difficulties with specific circumstances and a lack of communication with customer service.
I applied for a loan in Jan 2015, prepared with all the materials they suggested on their website. The process was quick and straightforward and I was 100% funded within 24 hours, a direct deposit in my account the next day. The rate was quite pleasant for a 36 month loan and is helping me pay less interest to banks while giving back to the investors who come to Prosper. The automatic payments allows the account to take care of itself. With this great experience so far I may just apply for a second loan 9-months in per Prosper’s guidelines for my situation. I truly appreciate them! [Particularly a reasonable origination fee to make the APR much closer to the interest rate than others might offer.] – John, 7/22/15, Better Business Bureau
Due to some of the reviews, I put off applying for a loan with Prosper even though I kept getting their preapproval letters. Well, I finally applied and was pleasantly surprised. I applied for the loan on January 22nd, the same evening I received an email notifying me of the required documents. I sent the documents the same night, basic documents, W-2, pay stubs. 3 days later I received an email that my loan had been funded and would be deposited in 2-4 days. The money actually hit my account the 2nd day. The easiest loan ever. $28,000 loan with a 713 credit score, good bye credit cards. – D.M., 1/28/16, Yelp
I’ve been an investor in Prosper loans for more than five years. The business concept is great and my returns have been good given this low interest rate environment. However, I am steadily moving all cash from Prosper to Lending Club as my frustration mounts over poor software quality and lack of good communication. Prosper just keeps messing up on reporting and accounting. You call up Support and they tell you that there are problems, that the numbers are wrong, or that the developers changed stuff without warning. This is a consistent problem over the last few years and hasn’t gotten better. Prosper management just doesn’t understand the basic of good customer communication. Rather than transparency when they have problem, they expect the customers to figure out bugs and call Support about them. Support will own up to it but there will be no overall communication from management. If you look at the company’s blog posts, they never mention the horrendous problems they have, they try to hide them. – Carl, 7/20/15, Yelp
I applied and got a prosper loan fairly easy. I lost my job and was unable to pay because I had to dispute with my former employer the fact that I was fired and didn’t quit as they claimed, which had to be settled before I could get any unemployment. Since I had no income, I fell behind on payments and called and asked if I could make partial payments until I got my finances straightened out and they flat out refused. The woman on the phone told me “oh well! take out another loan” and then told me my credit rating would be affected but she doesn’t care, “it’s too bad, pay it now in full” as far as missed payments. They refused to take ANY money I offered them because it wasn’t the exact amount of what was past due and the exact payment due per month. They accepted no other payments. I hope they have fun explaining to their investors why they aren’t getting paid and why they are refusing payments of any kind that match the exact payment amount. I’m not even bothering to pay them now. I told them several times what I can do and they refused to budge. Forget them and do not become an investor. – Anonymous, 12/2/15, Credit Karma
Final Thoughts on Prosper – Yes or No?
Whether you are looking for a personal loan or an investment option, Prosper is a solid choice with a long history to back up its positive reviews and ratings. For borrowers, Prosper offers unsecured personal loans with good interest rates. The quick turnaround time is a big draw, as are the lack of application and prepayment fees. Those without a good credit history, however, will find it difficult to get great loan terms. This is good news for investors, though, as is the fact that Prosper has paid out millions of dollars to their investors. The risks inherent to making a P2P investment are still present, but Prosper makes it easy to diversify your portfolio and see returns of 5–9%. As long as you live in one of the states that allows P2P investing, Prosper is great option. We give Prosper a yes overall, both to borrowing and lending.