Is Prosper.com a Good Idea For Borrowers or Investors?

By David / April 17, 2015
Is Prosper.com a Good Idea For Borrowers or Investors?

Prosper claims to be the market leader in peer-to-peer lending. The website is very upfront about interest rates, fees, and how it works. However, investors can’t browse available investment opportunities without first depositing money into an account for investment. You can earn returns as high as 10.46%, and can begin investing with as little as $25.

Prosper For Borrowers:

It takes two minutes to get your loan rate at Prosper.com. Provide your credit rating, annual income, socia security number, address and phone number, and desire loan amount, and you’ll get your quote, as well as other options.

To compare rates between LendingClub and Prosper, I used the same parameters that I used in this introduction to peer-to-peer lending. LendingClub.com offered me an APR of 21.73 % for my $10,000, three-year loan, while Prosper.com wanted to give me between 28 and 31%. This was with a “good” credit score, which leads me to the conclusion that you need excellent credit to benefit as a borrower with peer-to-peer lending.

Interest rates, in general, trend higher at Prosper.com, with 35.97% as the highest APR available. The maximum APR at LendingClub.com is 35.96%.

And be aware that both charge origination fees of up to 5%. While those fees are incorporated into the APR, the existence of origination fees impacts the amount of proceeds you receive at funding and means that your effective interest rate will be higher if you pay your loan off early.

Checking your rate at Prosper.com is a “soft” credit inquiry and, although the website asks for your social security number, you won’t take a credit score hit when you check your rate.

An important note: Prosper.com uses the Experian ScoreX Plus credit score, which has a range of 300 to 900. These are the parameters using this scoring system:

  • Excellent credit: 760+
  • Good credit: 700 +
  • Fair credit: 640+
  • Anything under 640 qualifies as poor credit

Do not base your credit rating on your FICO credit score when you check your rate at Prosper.com. You’ll be selling yourself short.

Prosper lists closing fees which varies based on your loan rating. (Loan ratings are calculated based on a number of factors. The closing fees, due when you receive full funding, are as follows:

  • AA loan – 0.50%
  • A,B – 3.95%
  • C – HR – 4.95%

Prosper.com takes the closing fees directly out of the loan amount, so you’ll want to roll the fees into the loan. If you’re borrowing money for a specific purpose, make sure to borrow how much you need, plus enough to cover closing costs.

Prosper.com collects a $15 failed payment fee, if your payment is denied for any reason, and a late payment fee for payments made more than 15 days after the due date. Investors keep the late fees, but Prosper.com keeps any failed payment fees.

Finally, please note that Prosper loans are currently not available for borrowers from Connecticut, Iowa, New York, Maine, North Dakota, Pennsylvania, Vermont and West Virginia.

Prosper For Investors:

Prosper.com ranks loans, based on a number of factors, on a scale of AA to HR, with AA being very low risk and HR being High Risk. Of course, high risk loans also have a higher return. Investors recommend diversifying across loans as much as possible ($25 per loan) to lower your risk.

Pros

  • Investors can earn more than 10% on their investments
  • Borrowers with poor credit can still borrow money
  • Bypassing banks makes the loan process faster, easier and more convenient
  • No pre-payment penalties on your loan
  • Lenders receive additional money for late payments
  • Unsecured loan means you can borrow money without putting your home or personal property at risk of foreclosure or re-possession
  • Loan payments are not automatically deducted from your checking account unless you choose that option

Cons

  • High interest rates for borrowers
  • Closing fees
  • Does not use FICO score to gauge borrower’s credit

Verdict:

Like LendingClub.com and other peer-to-peer lending sites, Prosper offers an excellent value for investors looking to earn 10 % or more on their investments. On the other hand, interest rates are high for borrowers with less than excellent credit; borrowers are likely to find a better deal through conventional loan channels.

To learn more about personal loans and personal loan lenders, please check out our new Personal Loans Page.

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