Review Of Peer-To-Peer Lending Site – Prosper

by Hank Coleman

Prosper - Peer to Peer Lending and InvestingProsper is a Peer to Peer lending website similar to Lending Club that connects individuals who want to lend money with others who are looking to borrow money. It is appealing to both borrowers and lenders because it offers great rates for borrowers and great returns for investors.

As an investor, Prosper allows you to skip the bank and deal directly with borrowers putting more money in your pocket. And, as a borrower, you can typically save several percentage points on your loan than what you would have received otherwise from a traditional lender.

Investing With Prosper

Prosper allows you to invest an amount of money, with which you can loan out to other individuals. The minimum amount to loan out is $25, and you can loan any amount beyond that to $25,000.

With lending, to ease your risk, it is recommended that you make a large amount of small loans versus one large loan. When you lend money, you can look at the level of risk versus return. When you lend, the risk is the borrower’s ability to repay. You can look at their credit to gain a glance at that.

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You can also look at the reason for why the borrower is looking for money for a business, debt consolidation, or more. You can also lend in an automated way, by selecting a risk profile and letting Prosper do the rest. They will put you in loans that match your pre-selected criteria.

Borrowing Money Through Prosper

If you are looking to borrow money, Prosper could be a good choice. You can get loans for debt consolidation, home improvement, business loans, personal loans, and really anything else.

When you apply for a loan, you must give your personal information, review your loan options and see what rates you can get, and create a post. On your post, you should put relevant information, such as purpose, history, etc.

Once lenders invest in your loan, and Prosper finalizes everything, the money is deposited into your account. You monthly loan payments are fixed and will be automatically deducted from your bank account.

Fees and Costs Of Prosper

If you lend money, there are no costs to you. Prosper does charge a 1% loan servicing fee, which is assessed as part of each monthly payment from the borrowers. If, for some reason, your borrower does not pay, the loan is sent to collections, which also charges a fee on any recouped funds. If you borrow funds, there is a closing fee that varies based on your Prosper rating, and that fee is taken from the loan at closing, before the money is deposited into your account.

Social lending or Peer to Peer lending offers borrowers another avenue to receive funding for their needs from an alternative source. Maybe you can’t receive a loan for some reason from a traditional bank or perhaps you are looking for a better interest rate on the loan, Prosper can provide you with that alternate means of funding your loan. And, for investors, Prosper allows you to diversify your investment portfolio with a different type of investment than traditional stocks, bonds, and mutual funds.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 586 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 4 comments… read them below or add one }

Hack @ Smart Money Hacks

I’ve heard some great things about Prosper – both for borrowers and lenders. I really like the idea behind it and the returns are very impressive. Thanks for the review Hank.

Reply

shanendoah@the dog ate my wallet

We’ve been lenders with Prosper for almost 5 years now. Overall, we’re down a few hundred dollars. This is partly because of our own financial situation, we had to start pulling money out instead of reinvesting and partly because we often invest in high risk loans.
In the early days (before accredidation) Prosper was kind of like crack. It was addicting to sort through the loan requests and make decisions. It’s less so now, which is probably good.
I will say, more than earning money, the best part of being a Prosper lender is when you get a note saying someone has paid off their loan in full. We made some emotional decisions about where to lend (veterinary bills, getting out of the pay day loan cycle) and it’s emotionally rewarding to know that you really did help someone out.

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Peter Renton

Great review Hank. As shanendoah alluded to above Prosper went through some major changes when they registered with the SEC. In Prosper 1.0 (prior to SEC registration) it was a bit of a free for all with many sub-prime borrowers with poor credit allowed to borrow. Hence, many early investors lost money.

In Prosper 2.0 (from July 2009 onwards) they tightened their credit standards significantly and investors are now doing very well. I have been an investor on Prosper for about 16 months now and my returns are nothing short of astounding (over 17%).

Reply

Simon @ Modest Money

Peer to peer lending has certainly come of age and Prosper seems to be leading the charge with an innovative platform and policies to better facilitate borrowing and lending. With careful selection as demonstrated by Peter’s comment above, one can have significant returns on their portfolios.

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