In this review of Prosper, we will be talking about a peer to peer lending marketplace that has more than 2 million members and over 6 billion in funded loans. Prosper allows people to invest in each other in a way that is financially and socially rewarding. On Prosper, borrower’s list loan requests between $2,000 and $35,000 and individual lenders invest as little as $25 in each loan listing they select. Prosper handles the servicing of the loan on behalf of the matched borrowers and investors. From everything we have gathered, the system that Prosper has created seems to be Utopian in nature to some degree it is refreshing and exciting to have a system such as Prospers’ open and ready for business. With a system like Prospers’ up and running, I’m sure it’s not all peaches and cream. Prosper probably have their challenges, but from the looks of it, they seem to be doing fine the midst of said struggles. Let’s take a look at how Prosper holds up against our standards of business.
I don’t know if I would call this category the most important, but it’s certainly up there in terms of validity. For me, the quality of the service that is given is one of the great factors that I take into account when considering the services of a company. In reviewing Prosper, we can definitely say that the service Prosper offers is very strong, but not perfect. There’s quite a bit of overwhelming positive feedback on sites like the Better Business Bureau and moneyunder30.com, but there’s also a fair amount of negative feedback. Though I will note, every bit of negative feedback that I found online, was addressed by a representative by the company. Which is a good sign. I truly believe that it is their goal to create an incredible consumer experience.
When it comes to funding the actual loans, Prosper does things a little different. Your loan is actually funded by real people, instead of a bank. This is all part of that Peer-to-Peer Lending system we mentioned earlier. In reviewing Prosper we found that they are the market leader in peer-to-peer lending, a popular alternative to traditional loans and investing options. Prosper sort of cut out the middleman to connect people who need money with those who have money to invest. Here’s how it works according to Prosper:
- Borrowers choose a loan amount, purpose and post a loan listing.
- Investors review loan listings and invest in listings that meet their criteria.
- Once the process is complete, borrowers make fixed monthly payments and investors receive a portion of those payments directly to their Prosper account.
One factor that really contributes to the success of this peer-to-peer lending system is the understanding of how important security is. In reviewing Prosper we found that they considers this to one of their greatest concerns. For both, the borrowers and the investors, there are parameters in place to make sure that both parties are taken care of. For the borrower, your identity is never actually revealed. While it is encourage to give some details about your needs to the investors, you’ll remain completely anonymous. For the investors, Prosper offers an ID Theft Guarantee to keep them safe from fraudulent borrowers.
Time Frame & Approval Rate
In terms of how long it takes for you to actually receive your loan from Prosper, it all depends on a number of things. Like the particular investor, and the amount of the loan. Regardless of all that, you should see the funds in your account within a week or so. Which, I have to say is pretty impressive. Sometimes it can take weeks on end to receive the funds you applied for. For the borrower who needs the money as fast as possible, that’s not an idea situation.
From the polls we have taken regarding consumers outlook on Prosper, Prosper scores an 81.8% approval rate. Not too shabby, Prosper. While they are not on the level that Signature One Capital is, they are not far behind.
Terms & Rates
Now, let’s get down to the nitty gritty of things. In reviewing Prosper we found that they offers two primary fixed terms. A 3 or 5 year fixed term. Which some might consider to be fairly limited. While I see their point, you have to keep in mind that the maximum loan amount is only $35,000. Some might consider that to be a great number, but you got to remember some people have like $80,000 in personal debt. There are folks up to their necks, just drowning in their own debt. For an amount that great, I could totally see wanting to have a greater range of options, but for what Prosper offers, I think a 3 or 5 year fixed term is more than appropriate.
Another perk you have to really take into account when considering Prosper is the fact that there is no pre-payment penalty. A prepayment penalty, also known as a “prepay” in the industry, is an agreement between a borrower and a bank or mortgage lender that regulates what the borrower is allowed to pay off and when. Most mortgage lenders allow borrowers to pay off up to 20 percent of the loan balance each year. Why? Well, because they still have to make their money. Most people don’t really understand how loans with prepay penalties work. Here’s an example that applies to this case.
Let’s say the loan amount is $35,000, and you have an interest rate of 6.5%. The Prepay Penalty can sometimes be 80% of 6 months’ worth of payments. So let’s do the math:
$35,000 loan x 6.5% interest rate = $2,275
Annual Total Payments: $2,275 /2 = $1,170: 6 total monthly payments
$1,170 x 80% = $910
Prepayment penalties were devised to protect lenders and investors that rely on years and years of lucrative interest payments to make money. When loans are paid off quickly, regardless of whether by refinance or a sale, less money than originally anticipated will be made. It’s a simple concept. So the fact that Prosper has no prepayment penalties is pretty remarkable. It’s just another example of how great this new Peer-to-Peer system is.