Prosper Loans Review
Prosper Personal Loans
If you’re worried about struggling to obtain a loan from a traditional lender due to a shaky credit history, Prosper Loans could give you the chance you need to explain why you’re a good investment.
- Easy Application Process
- No Prepayment Penalty
- Due Date Flexibility
- Higher Rates
- Poor Customer Service
Whether you need a loan to consolidate your existing debt, save up for a big purchase like a wedding, or anything in between, it can be difficult to figure out which loan company to choose.
To make matters worse, if a loan application is rejected, it can damage your credit score, which makes it harder to get accepted for another loan in the future. Therefore, it is essential that you make the right decision from the get-go.
Prosper Loans is a popular option amongst borrowers who struggle to obtain approval from traditional lenders, so if that sounds like something you’d be interested in, then keep on reading.
What is Prosper Loans?
Prosper is a loan company best known for being the first peer-to-peer (P2P) lender in the US. P2P marketplaces are different from traditional lenders – like banks and building societies – because they act as an intermediary between borrowers and lenders instead of providing the loans to borrowers themselves.
Effectively, borrowers are funded by their peers; this is where the name peer-to-peer comes from. All parties benefit from this arrangement. Investors lower their individual risk by pooling it with their peers, in which various investors bid for chunks of the same loan on a P2P marketplace – it could be as little as $25 each.
On the other side of the coin, borrowers can obtain funding for a loan that they may typically either be rejected for or receive at a very high interest rate. Even the lender benefits – by acting as an intermediary, they carry less risk and have fewer overhead costs. In turn, this means borrowers can have the loans at a cheaper cost due to competitive interest rates and other benefits like a quick application. Sounds like a good deal, right?
Launched in 2005, Prosper was an innovator in the world of peer-to-peer lending: they were the first platform launched in the US. However, it proved to be a good business model, because numerous other peer-to-peer lenders have since sprung up and found success. There are now many options to choose from, but Prosper remains one of the biggest and most popular. They’ve now lent money to almost a million customers, giving out more than $16 billion in total.
Prosper offers a variety of loans. A personal loan is used for individual consumers as opposed to commercial use.
The only thing you can’t use a Prosper loan for is post-secondary educational expenses since P2P loans aren’t deemed suitable for this by federal law.
Instead of getting a generic personal loan, you can also opt to get a loan designed for a specific purpose.
All these loans work in roughly the same way, but knowing the reason for your loan boosts your chances of acceptance and helps Prosper representatives to understand your situation.
Prosper Personal Loans Available:
- Debt Consolidation Loans: to pay off credit card balances or numerous loans in one fixed monthly payment
- Home Improvement Loans: for renovating your home
- Short Term and Bridge Loans: for short periods of time
- Auto and Vehicle Loans: for purchasing a vehicle
- Baby and Adoption Loans: for expenses related to a new baby or child
- Engagement Ring Financing: for an engagement ring
- Special Occasion Loans: for other important events like a graduation or wedding
- Green Loans: for environmental investments like solar panels or water preservation systems
- Military Loans: for those who are currently serving in the military
There are also home equity lines of credit (HELOC) available, which is a relatively new addition to the range. If you want to take out a loan, but you already have equity in the form of a mortgaged home, you can tap into this using a HELOC to get more money for a lower rate. You can then use the money for some major expenses outlined above, like debt consolidation or a new baby.
A HELOC works slightly differently from the rest. If you opt for a HELOC, you’re taking out a secured loan, which makes you a less risky borrower (if you default, the lender can take your home as collateral). As a result, you can access a much larger loan amount – up to $300,000 for the highest-rated borrowers.
The APR is slightly lower for the HELOC. It can be as low as 4.33% APR, including a 2.00% discount for enabling AutoPay. The rate is adjustable rather than fixed, although you can lock in a rate up to three times if you’d prefer.
The repayment period is also longer since a HELOC allows you to withdraw money as you need it rather than committing to a fixed number straightaway. You can draw money out for up to ten years then repay over 10 to 15 years.
Prosper Healthcare Lending
Finally, Prosper has an offshoot called Prosper Healthcare Lending, specifically for medical loans. These loans can be used for anything from cosmetic surgery to fertility procedures.
Prosper Healthcare Lending loans let you take out up to $35,000 for a term of up to 60 months, with an APR of between 7.49% to 35.99%.
Prosper Loan Characteristics
- Unsecured: All Prosper personal loans are unsecured (except the HELOC), meaning you don’t need to provide collateral and have the same features.
- Loan Amount: You can take out a loan with a value between $2,000 and $4,000, the perfect amount for most casual borrowing needs.
- Fixed-Rate/Fixed Term: They’re all fixed-rate and fixed-term, which means the rate (the interest you pay) and term (length of the loan) won’t change at any point.
- Term Length: Term length can be either three or five years – although other lenders offer more choice over the size of the term, these terms tend to be the most popular amongst borrowers, anyway.
APR (annual percentage rate) is the way most loan providers display their repayment rates to make it easier to compare rates between different lenders.
For Prosper, the APR you’re charged could be anywhere between 7.95% and 35.99% depending on your credit history and the type of loan you want to take out. For example, choosing a longer loan term and having a low credit score will always result in a greater APR.
That’s the basics covered – but Prosper has some other interesting features too. You can choose to apply with a joint applicant, which could lower your rate and is likely to boost your chances of approval. However, there’s no option for having a co-signer (somebody who agrees to make your loan payments if you can’t).
As well as the standard payment options of a check, phone, and online payment, Prosper borrowers can opt for AutoPay – a feature you can enable through your application, which takes the monthly payments from your bank account automatically. The AutoPay feature means you’ll no longer have to worry about accidentally missing your payment date and getting hit with those pesky late fees. But don’t worry, you can turn off AutoPay at any point as long as you give yourself at least three business days for the change to take effect.
There are some additional aspects of payment flexibility as well; for example, you have the option to change your payment date.
When you take out a loan, it’s important to make sure you’re aware of all the hidden costs involved – some companies are more transparent than others about the fees that pop up along the way.
Prosper Origination Fee: When it comes to Prosper, all customers have to pay an origination fee. Prosper charges an origination fee of 2.41% to 5% (the exact amount depends on your credit score), which will be added on to the total sum of your loan and added on to your monthly payments.
Late Payment Fee: If you miss your payment due date by 15 calendar days, you’ll have to pay a late fee, worth $15 or 5% of the unpaid amount (whichever is greater), and eventually an insufficient funds fee of $15. Of course, these should be avoided when possible. One advantage is that there’s no fee for paying your loan off early, so it’s definitely an option you should consider if you can afford it.
Payment By Check Fee: If you pay by check, you’ll have to pay a fee of either 5% of the payment amount or $5 (whichever is less), so it’s wise to pay by AutoPay.
As mentioned, the APR of the loan is between 7.95% and 35.99%, which encompasses the origination fee. For example, a customer with an average credit score might take out a three-year $10,000 personal loan and be charged an interest rate of 11.74% plus a 5.00% origination fee. This would result in an APR of 15.34% and monthly repayments of $330.90 over 36 months.
If the same customer were to take the same loan out over a five-year term instead, they might have an origination fee of 5% and an interest rate of 11.99%, making an APR of 14.27% and monthly repayments of $222.39 over 60 months. In a nutshell, this means that longer terms result in lower monthly repayments, but you’ll have to pay a larger amount overall due to being charged greater APR.
Signing Up and Getting Started
Before you can take out a loan with Prosper, you’ll first need to enter your details online so you can find out your rate.
This is very straightforward – just head straight to the homepage, and you’ll see a link prompting you to start the process.
Entering Your Personal Details
The initial questionnaire contains questions about the size of the loan you want to take out and your personal details. You’ll need to meet their eligibility criteria.
Although Prosper is more lenient than more traditional lenders, there are still some requirements.
You’ll need a credit score of at least 640, credit history of at least two years, a maximum debt-to-income ratio of 50% (excluding your mortgage), no bankruptcies filed within the past years, and fewer than five credit bureau inquiries in the past six months.
If you apply with a joint applicant, these questions are relaxed slightly.
Choosing Your Type of Prosper Loan
You’ll then be presented with a few different loan options of varying term lengths and interest rates. Prosper takes into account various factors to decide on which loans you qualify for, including your credit score but also multiple other aspects of your credit history.
It’s important to point out that, at this stage, Prosper has only carried out a ‘soft pull’ on your credit. This means that although they’ve checked your score, it won’t affect your credit score, unlike a ‘hard pull,’ which they’ll carry out later on in the process.
Acceptable findings in the soft pull mean you’ve achieved pre-approval, so at this point, you can properly start the loan request. Because Prosper is an online lender, this is very quick. As well as filling in the information they ask for about yourself, you’ll have to write your profile, focusing on why you’re a good investment and a trustworthy borrower. Your peers will only invest in you if they think it will make them richer!
It can be tempting to lie about your financial situation or omit certain details, but it’s important to be as honest as possible, even if parts of your history are slightly sketchy. You’ll also have to upload documents like your bank statement, pay stubs, and a W2 if applicable.
Closing the Loan
Because Prosper is a peer-to-peer lender, your loan can only be completed if there are people who are actually willing to lend the money to you.
That’s why you need to make sure your personal profile is convincing – if not, nobody will want to invest in you. If your loan request isn’t at least 70% funded in 14 days, your application will expire, although this is relatively unusual.
To give investors an idea of your risk level, Prosper assigns each borrower a rating. The highest is AA followed by A, B, C, D, and E, down to the lowest rank of HR. This also determines your interest rate.
When the listing closes, you’re almost ready to receive the money. You’ll just need to verify your identity by sending an identification and proof of address. After that, the money will be sent straight to your bank account via direct deposit and will appear there within three to five days.
Prosper loans are originated through WebBank, a Utah chartered industrial bank, that is regulated by the Utah Department of Financial Institutions and FDIC (Federal Deposit Insurance Corporation). This guarantees that your funds will be protected.
In addition to this, Prosper is subject to examination and investigation by state and federal agencies that observe consumer protection laws. All their loans comply with state and federal lending laws.
Prosper Loans Customer Service
Prosper has a customer service team available for long hours. From Monday to Friday, borrowers can ring the phone line between 5 am and 6 pm (PST), or between 6 am and 2:30 pm on Saturday. There’s no support available on Sunday. You can also email them.
They’re fairly flexible with the loan terms. You can change the date you pay your loan each month, but you can’t extend your loan except for emergency situations.
Unfortunately, Prosper has a poor rating on Trustpilot, but most complaints are due to unexpected fees – this demonstrates the importance of understanding your loan features before you close the agreement.
Pros and Cons of Prosper
As with any provider, there are advantages and disadvantages of taking a loan out with Prosper.
Depending on your situation, some of these might be more relevant than others.
- Flexibility over the due date
- P2P lender opens up loans to people who wouldn’t normally be accepted
- Get the chance to explain why you’re a good investment
- No prepayment penalty
- You can check rate without a hard pull
- Short term length
- Fees for late payment and origination
- Takes 3-5 days to receive money
- Relatively high rates
- Poor customer service reviews
Alternatives to Prosper
Prosper may have been the first P2P platform to launch in the US, but it’s no longer the biggest. Despite being launched in 2014, LendingClub has lent out $50 billion to its customers – that’s around triple the amount of Prosper.
LendingClub offers personal loans, business loans, auto refinancing loans, and patient solutions loans for healthcare costs. Their minimum credit score requirement is only 600, which is slightly lower than that of Prosper, but that’s not the only requirement. You’ll also need a minimum credit history of three years and a debt-to-income ratio of less than 40% – these are more stringent than the requirements of Prosper.
LendingClub customers have a slightly lower credit score on average – 699 compared to 710. They also accept joint applications, which increase the likelihood of approval and credit requirements. With a joint borrower, you can have a credit score as low as 540. There are origination fees of 1-6%, late fees, and the APR is almost the same as Prosper. You can also loan slightly less as the minimum amount is $1,000.
Despite the lower credit score requirements of LendingClub, it works better than Prosper for borrowers with better credit scores. A good-credit customer who applies for loans on both sites typically gets offered a lower APR on LendingClub compared to Prosper, so if you have a credit score of 700 or higher, then it may be the best personal loan option for you.
Upstart believes that the determinants of a creditworthy borrower go far beyond their credit score.
They stand out from other lenders by taking factors like education, area of study, and job history into consideration too so they can predict whether you’re likely to be a high earner in the future. They call these ‘smarter rates.’
Unsecured Personal Loan Options:
- Credit card consolidation
- Debt consolidation
- Home improvement
- Medical loans
- Wedding loans
- Moving loans
The characteristics of Upstart loans are very similar to those of Prosper and LendingClub – all three borrowers have loan terms, loan values, and minimum credit scores that are almost the same.
The primary difference is in the smaller details, and in the case of Upstart, the differentiating factor is certainly their attitude towards highly educated individuals with good earning potential. If you fall into this category, you’re likely to secure a lower rate than you might from other platforms.
Do Prosper loans hurt your credit?
The impact of Prosper loans on your credit score is no different to the effects other loan companies would have. The only way it will negatively impact your credit score is if you make an official application for the loan and get rejected. This is especially harmful if you apply for multiple loans and receive rejections in a small space of time – some loan providers state as a criterion that borrowers can’t have had more than a few hard pulls on their credit score within a six-month or one-year period.
However, this can be easily avoided by going through the pre-approval process first, which only acts as a ‘soft pull’ on your credit score. Although it’s possible that you get through this stage and get rejected later on in the process, it’s relatively unlikely.
Once you’ve been accepted, having a loan can actually positively impact your credit score as long as you’re prudent and punctual about making your monthly payments. This demonstrates that you’re capable of managing debt and meeting your obligations, which will increase your credit score.
What is the minimum credit score for a Prosper loan?
It’s 640. But if you don’t meet this criterion, don’t panic. You have two options: you can work on improving your credit score until you’re eligible, or you can take a loan out with an alternative provider.
Various other lenders give out loans with almost exactly the same features as Prosper, but to borrowers with lower credit scores. One example of this is LendingClub (requires a credit score of 600).
How long does it take for a Prosper loan to be approved?
Because Prosper is a peer-to-peer lender, the process works slightly differently to traditional lenders. Even if Prosper gives you approval for a loan, which is relatively quick and takes three to five days, you’ll still need to wait for lenders to bid on your loan.
In theory, this can take a long time, especially if you’re a high-risk borrower and want to take out a large loan amount – lenders will be concerned about you defaulting. If you don’t receive enough bids (aka the full funding amount) within 14 days, the loan can’t be closed. However, it’s unusual for the process not to be completed within a matter of days.
Is A Prosper Loan For You?
If you’re worried about struggling to obtain a loan from a traditional lender due to your shaky credit history, Prosper could give you the chance you need to explain why you’re a good investment. Even better, they won’t rip you off with extortionate interest rates to do so, unlike other bad credit lenders.
On the other hand, if you have a good credit score, you can probably get a better deal elsewhere on a loan that won’t charge you high fees for origination. Whatever you choose, it’s important to ensure you fully understand the terms of your loan and know you’re able to meet the repayments.