If you carry any sort of debt month to month–like credit cards, student loans, or even an auto loan–you likely receive prescreened loan offers in the mail on a regular basis. And if your mailbox looks anything like mine, you’ve probably gotten a piece or two from a company named Prosper. Read on for our complete Prosper review (for borrowers).
Prosper is a peer-to-peer (P2P) lending platform, connecting investors who want to lend with those who want (or need) to borrow. It is not a bank, and Prosper doesn’t actually do any of the funding. The company simply connects those who have with those who want, in a safe, structured environment.
We’ve talked before about what it’s like to be an investor on a P2P like Prosper. Today, though, I would like to talk about the pros and cons of being on the other side… as a borrower.
What Makes Prosper Different?
If you need cash for a home improvement project, medical expenses, or to consolidate high-interest credit card debt, your first thought might be to consider a personal loan from the bank. Prosper is not that.
The biggest difference with a loan through Prosper is that, as I mentioned, the company is not a bank. It does no actual lending of its own. Instead, the platform allows various investor-lenders to pool their money together. They then loan funds of up to $35,000 to those who need them. Loans range from a minimum of $2,000 to a maximum of $35,000. So borrowers can fund a wide range of financial needs with a Prosper loan.
By taking the banks out of the process, Prosper is able to offer lower interest rates than many would be able to find elsewhere.
Who Can Borrow on Prosper?
If you have a decent credit score and a need for a personal loan, you can apply through Prosper. The process is pretty simple, too. All you need to do is go to their website and enter a little bit of information about yourself in order to check the rate for which you qualify.
Oh, and I was pleasantly surprised to see that checking your rate on the site does not impact your credit with a hard inquiry. Instead, it will show up as a soft inquiry throughout the application process. If and when lenders offer you a funded loan, Prosper will place a hard inquiry on your credit report.
Depending on a few key credit-related factors, you’ll be assigned a Prosper Score. This score, ranging from 1 (the worst) to 11 (the best), plays into whether or not your loan request will get funded and the interest rate you’re eventually offered.
The factors taken into account are:
- Your credit card utilization ratio*
- Debt-to-income ratio
- Number of delinquent accounts*
- Number of recently opened trades*
- Number of hard inquiries*
- Repayment performance on prior Prosper loans, if applicable
*information obtained from your credit report
If Prosper doesn’t think you’re a good candidate for a loan, they’ll let you know at this time.
They will also take your Prosper Score a step further and use it in their proprietary system to assign your loan a Prosper Rating. This scale, ranging from AA to HR, assesses a loan’s level of risk to the investor. This rating is important, as investors will look at it before deciding whether your loan is worth their hard-earned funding.
Get Your Loan Funded
Now your initial qualification is out of the way. You have some idea of the interest rate you’ll get on a Prosper loan. But now it’s time to actually make the loan request.
In order to do this, you’ll set up a profile with a little bit about yourself and why you want/need this loan. Keep in mind that with Prosper, investors will actually bid on your loan. This affects whether lenders will fund your loan and the interest rate they’ll offer. So an appealing write-up is valuable here.
How Much Does It Cost?
With a Prosper loan, you’ll only have two expenses: your APR over the life of the loan and an origination fee.
Prosper bases the APR on the factors mentioned above–your credit report and Prosper Rating. But it also uses the response of investors funding your loan. If you seem like a solid investment, they’ll bid your APR down until the loan is “won.” (Think of it as eBay for loans.)
Prosper loans are given on either a three-year or five-year basis, with varying interest rates depending on the length you choose. If you end up with more flexibility in your budget than planned and don’t want to wait out the full term, you can pay off the debt early and save yourself even more interest. There are no prepayment penalties with Prosper loans.
As for the origination fee, Prosper will take it out of your loan at the very beginning. After the process is complete and Prosper has verified your identity, the company will deposit the funded loan, minus the origination fee, right into your bank account.
The cost of this fee is a percentage of the total loan awarded, based on the rating Prosper assigned you at the beginning of the process. Here’s the breakdown:
Why Not Borrow from a Bank?
There are a number of reasons that someone would choose Prosper over borrowing from a bank, whether online or brick and mortar.
First, depending on your creditworthiness (and ability to write a compelling loan profile), you may be able to snag a significantly lower APR than you would going with a big bank. Prosper loan interest rates start at 5.99 percent for borrowers with great credit. Unless you have exceptional credit, this is likely a lower rate than you could find elsewhere.
Second, Prosper is a great place for those with less-than-perfect credit to not only qualify for loans, but get fair rates. This is particularly true when you consider than many people are getting these types of loans in order to consolidate credit card debt (with 25%+ APRs!). Getting approved for a personal loan is tough when you have a high debt-to-credit ratio. But you have a better chance of getting a moderate-range APR loan from Prosper.
Prosper allows these types of people the opportunity to personally appeal to individual investors, increasing their chances of success. A traditional bank often approves or denies based on credit formulas alone. But Prosper lets you explain yourself and your situation. This can increase your odds of approval.
Pros and Cons
As with any financial product, there are both advantages and disadvantages to taking out a loan through Prosper. Let’s take a look at each.
- As mentioned, the bidding platform allows for borrowers to make a personal appeal to investors, increasing their chances of approval. But also because of the bidding process, borrowers can often get lower rates with Prosper loans.
- Loans can range from $2,000 to $35,000. This covers a wide range of needs at an interest rate that’s often better than a credit card advance or bank personal loan.
- Checking rates on a Prosper loan through their website doesn’t affect your credit score. This means that you can find out whether or not you would be approved without dinging your score. (If you do move forward with the loan, a hard inquiry will appear on your credit after it’s all final.)
- Loan terms are either three or five years long. There are no penalties for paying off your loan early.
- If your credit is less-than-stellar, there’s still a chance that you could be offered a high interest rate. However, if you are absolutely unable to get a much-needed loan elsewhere, Prosper still offers you an option. Also, for many borrowers, Prosper’s interest rate will still be lower than that of a credit card.
- Your origination fee is based on the proprietary Prosper Rating, which you can’t control (or really even predict!).
- Loan amounts are limited to $35,000. If you’re planning an extensive home remodel or have high medical bills, this may not be enough for you.
- Terms are either three or five years; if you’ve been paying the minimum on those credit cards until this point, your monthly payment is likely to jump. Be sure you’re able to budget accordingly.
If you’re looking for a new option for your next personal loan, take a look at Prosper. Depending on your credit, you may be able to get your hands on the funding you need at a rate you love. Whether you want to cover adoption expenses, pay off medical bills, or consolidate those high-interest credit cards, Prosper makes borrowing money personal, simple, and almost fun.