Prosper - Legit Peer to Peer Lending? [Review]

Looking for a review of the peer to peer lending platform Prosper?

I’ve been taking a closer look at Prosper and now I’m sharing my honest review and opinion.

To get all the details including how it works and tips for using Prosper keep reading below.

Before I start…

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Prosper Review

The financial meltdown saw the peer to peer lending phenomenon become very strong- and for a good reason; Banks were not lending to every Dick, Tom and Hurry anymore and this forced the free market to come up with a new way for people to access money; P2P lending.

Actually, that’s when peer to peer platforms such as Prosper started getting popular. By connecting institutional or individual investors who are willing to lend money with borrowers, the platform edges out credit unions and traditional banks.

prosper info wikipedia

What’s more, the website has slightly relaxed approval requirements and faster funding for borrowers which makes it very popular among borrowers. Prosper earns revenue through servicing and origination fees. Its competitors include Perform and Lending Club.

Prosper – How It Works

Prosper is just 1 of many financial websites I have been reviewing lately. I’ve also shared my honest reviews of Roofstock for Real Estate investing and Financial Engines so be sure to check them out if you want to learn more.

Getting back to Prosper. To get started, visit Prosper’s website and create an account. This is free. Follow the steps to link your bank account to your prosper account. Then transfer funds and place your bids on then various loan requests and boom, you are good to go!

This can be done either manually or through the platform’s auto investment feature which allows you to automatically invest based on criteria that you want. Now as a lender, you don’t lend loans directly to the borrowers. Instead, the company will issue you with a borrower payment dependent note and then will pay you when it receives payments from the borrower. Your returns are sent directly to your Prosper account.

Loan Grades and Scores

The lending platform has 7 loan ratings: HR, E, D, C, B, A and AA, where HR stands for high risk while AA is the lowest risk. The rates range from 31.72 percent for an HR borrower to 5.99 percent for a three-year AA borrower. Prosper also uses loan scores ranging from 1 to 11 to rank borrowers. This is an internal grading system where borrowers are graded depending on their payment history. They usually use a borrower’s credit data and this score to estimate the loss rate as well as determine the interest rate.

Who Can Invest On Prosper?

Not everybody can invest in this platform.

There are certain requirements that you must meet before you are allowed to invest:

All investors must be at least 18 years old, have a checking/saving account and a valid social security number.

Also, to invest, you must reside in any of these states:

Wyoming, Alaska, Wisconsin, California, West Virginia, Colorado, Washington, Connecticut, Virginia, Hawaii, Florida, Delaware, Idaho, Illinois, District of Colombia, Vermont, Utah, Hampshire, South Carolina, New York, Rhode Island, Oregon, Nevada, Montana, Maine, Minnesota, Mississippi and Michigan.

Note: States like Washington, Virginia, Nevada, Missouri, Idaho, and Alaska only allow people who have a $70,000 net worth and a $70,000 annual gross income to invest!

What Does Prosper Charge Investors?

Currently, the servicing fee for investors is set at 1 percent of the total outstanding principal balance of the borrower loan.

The figure is arrived at by multiplying the principal of the loan before applying the current payment by the loan servicing fee per year and then divided by 365 days. The resulting figure is then multiplied by the number of days since the loanee’s last payment. The recommended initial investment is at least $2500 spread across different loans.

Tips for investing at Prosper

Baby steps: If you are not a risk taker or you are not sure if this idea is for you, start off with A and AA rated listings. You will still make a significant amount and then over time, you can diversify into lower rated listings.
Don’t ignore notifications: This way you will know when the notes you have invested in have expired or have been paid.
Recurring transfers to fund your prosper account: This tool allows you to deposit funds into your prosper account recurrently and automatically.
Take note of your monthly payments: If your notes become active and fully funded, borrowers will be making payments every month which will be deposited directly into your account. You can withdraw the cash or re-invest it in more notes.

What are the Risks of Prosper?

Although the pros of investing in a peer-to-peer lending platform like Prosper can be very lucrative for investors, these things are not without risk. The loans are not secured which means there is nothing backing your investment. So if a borrower doesn’t pay, you are looking at a loss. Actually, this is the main con to investing in this type of lending. The annual default rate at Prosper currently stands at 4%. Also, there is the risk of the lending service closing shop. Your notes are not insured or guaranteed by any governmental or third party agency.

Other risks include:

Poor loan diversification: Now between investing in 200 loans at $25 and investing in 20 loans at $250 which one is riskier?

With a $250 investment, a single default can wipe out a good chunk of your gains.

Liquidity risk: The firm does not allow any late or unpaid loans to be listed on their platform which reduces investor liquidity significantly.

Is Prosper a Good Investment?

The few risks notwithstanding, Prosper stands out from the crowd with their different loan choices.

They do not just provide investors with a reliable credit spectrum to invest in but also offer various credit variables for onsite and API filtering.

This essentially means that you can either decide to go for lower risk average return loans by lending to borrowers with stellar credit ratings or go for higher risk higher return borrowers by lending to people with not so appealing credit ratings.

Either way, you are sure you will make some good money if you diversify well.

Before you leave

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(This is a 100% free training)

Mark Charles

Mark Charles is the founder of NoBSIMReviews and has been making a 6-figure income online for over 10 years.

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