As one of the first peer-to-peer lending companies operating in the United States, Prosper has introduced the concept to thousands of borrowers and lenders across the country, bringing them together to make loans without the intervention of a traditional bank or lending institution. Since the company began operations in 2006, it has issued thousands of loans worth hundreds of millions of dollars to qualified borrowers and helped private lenders earn attractive returns on their investments. Before doing business with any company, it is important to review the company’s concept and business practices, so here is a Prosper Loans review that will teach you everything you need to know about the company.
The Prosper Marketplace was founded in 2006 by Chris Larsen, a former executive for E-Loan and was CEO of Prosper up until March 2012. When he first started the company his vision was to provide the best financial services possible. In order to do this, Mr. Larsen staffed the company with some of the best financial executives available, including Kirk Inglis as CFO and COO, Sachin Adarkar as General Counsel, Jim Catlin as Executive Vice President of Acquisition and Risk Management and Roberto Arnetoli as Executive Vice President of Technology and Operations. Under this leadership team, the company has seen significant growth and has expanded its offerings to appeal to a wider range of borrowers and lenders across the nation.
During its years in service, the company has received more than $57 million in venture capital funding through four funding rounds. By forming partnerships with some of the biggest companies in the debt consolidation and personal loan industries, such as FreeCreditScore.com, CreditKarma, Freedom Financial Network, DebtGoal, and Lending Tree, Prosper has gained access to a wide pool of investors, lenders, and borrowers that are interested in what the company has to offer. The company had facilitated nearly $692 million in peer-to-peer loans and had around 2,000,000 members as of December 2013.
The Borrowing Process
The loans that are offered on Prosper are unsecured loans with fixed interest rates for the life of the loan. The loans extended to borrowers are entirely funded by lenders that have signed up with the website to personally provide funding for loans and collect interest on the amount lent to borrowers. Because of the low overhead of not having physical locations or a large support staff, borrowers are able to get the loans they need at a much lower rate and lenders earn a higher return on their investment.
The loans obtained through Prosper can be used for anything the borrower desires. Many people obtain loans to consolidate high interest debt, such as credit card debt, or to pay off older loans with a loan that has a lower interest rate. Other borrowers use the loans to pay for continuing education, to remodel their homes, to provide financing to their small business, to finance an auto mobile, to pay medical expenses, or to pay for a major event like a wedding.
In order to apply for a loan, the borrower must register with the website and create a loan listing that contains information about the loan needed. The information on the loan listing will include the amount needed, the reason for the loan, and the borrower’s financial characteristics. To be approved for a loan on Prosper, the borrower must be a citizen of the United States, have a valid social security number, have an active bank account, have a credit score of 640 or above, and live in a state that allows Prosper loans. More Borrower requirements here. The company states that applying for a loan will never effect your credit rating.
Once the borrower’s information has been received, Prosper will obtain the borrower’s credit report and check everything for validity. If everything is in order, the company scores the borrower’s loan listing and assigns the listing an interest rate that will be charged to the loan. All of the scoring is done automatically using a complex algorithm created by the company and the interest rate assigned is non-negotiable.
What About Lending Money?
Lenders that are interested in extending money to borrowers through the website can browse through the individual listings or perform a search to return all listings that meet specific criteria. After reviewing the listings that match the lender’s standards, the lender decides which loans they would like to fund and the amount that they would like to provide to the borrower. The minimum investment amount per loan is $25 and the lender can provide any amount that they like, up to fully funding the loan.
Many lenders like the services provided by Prosper after doing their own Loans Review because the company makes it easy to make money by investing in people and provides a better rate of return than many types of stocks, bonds, or real estate. The lender’s holdings can be easily diversified by lending small amounts of money to a wide pool of borrowers, reducing the risk of significant losses if one or two loans held go into default. Prosper has a fairly small default rate, with around 5% of loans going into default before being completely repaid.
A large part of the borrowing and lending process on Prosper is completely automated to make things as simple as possible for the borrower and the lender. The company uses a formula to calculate the interest rate for each loan and the rate cannot be negotiated by the borrower or the lender. After the loan has been fully funded by lenders, the company will transfer the funds to the borrower by direct deposit. The payments for each loan are automatically deducted from the bank account the borrower registered with the company and deposited into each lender’s account to be reinvested or withdrawn.
The Risks Involved
As with any investment, there are risks associated with investing with Prosper. The company has done its best to ensure that the risk of loan default is as low as possible while still providing lending opportunities to a wide pool of individuals and the company’s ability to assign set interest rates for the loans ensures that lenders will receive a reasonable return on their investment. Although the default rate for Prosper loans are low, you must consider the possibility when deciding whether to become a lender on Prosper. Do your own Prosper Loans Review before making the leap.