Prosper Review – Detailed Prosper Lending Review 11 Comments
Hey everyone, these reviews are really getting fun. So, Jeremy suggested that I do a review about Prosper this week and, I’ve gotta say, this is really going to be a fun one. The truth is, I’ve never heard of prosper before, let alone used them. So, this one took a bit of research but, it was well worth it. I learned quite a bit about this lending or, investing, I’ll just call it peer to peer lending service. None the less, I’ve got a lot to share!
Now, really quick for those of you who are new to my reviews here on Modest Money, I’m Joshua Rodriguez, writer of Monday Money and now review editor for Modest Money! I love feedback and, questions in the comments and always respond. Finally, if you’d like for me to review a product you’re not too sure about, simply leave me a comment below and I will go over it in depth for you! So…where was I?
Let’s Start With The Prosper Short Review
Prosper Pros – If you are a borrower, prosper offers unsecured loans at reasonable rates. If your an investor, you stand to make a bit of money with wise loans. Prosper helps a wide demographic of consumers with a simple service of bringing people with money into contact with people who need money.
Prosper Cons – Prosper definitely isn’t for everyone. The truth is, you have to have an Experian score of 640 or higher. But, that is to ensure that the lending peers don’t take too much of a risk. Prosper had much more cons, as all pier to pier lending did before 2008. In 2008, the SEC stepped in and considered peer to peer lending to be a form of securities and such companies that sold securities would have to be licensed. On 2 companies did and, the world of peer to peer lending became far less risky for both the lender and the borrower.
Overall – Is Prosper a strong investment that you really should be thinking about? Well, that’s not my call, that’s up to you and your securities advisor. It’s not because Prosper is a bad idea, as a matter of fact, that couldn’t be further from the truth! Prosper is a great company but, because every portfolio is unique, without knowing you personally I wouldn’t be justified in giving you advise with regard to investments like this. However, if you are a borrower, this is a great way to go! Because it is peer to peer lending, a lot of the middle man fees the banks charge are cut out of the equation…Although, there are clear fees for defaults that I’ll get to later!
Prosper Long Review
Because Prosper provides services on a peer to peer basis, investors and borrowers are going to be looking at this option from completely opposite points of view. That being said, I’m going to have to give two parts to each section of this review. Being that this is my first time doing this, I’d love your feedback on how it came out!
Starting With The Risks Of Being An Investor
Naturally, when you are an investor, you take on risks. It’s the name of the game which is why you never invest money that you can’t afford to lose and even then, invest carefully! But, any investment has risks so, here are the risks of investing with Prosper…
- Borrower Default – One big risk in any peer to peer lending program is borrower default. The bottom line is, if your borrower defaults on your loan, you are out of luck. Being that Prosper deals in unsecured loans, there is no collateral that you can rightfully call yours if a borrower defaults and never pays your loan back. I suppose that at some point you could take legal action but, that could take years and quite a bit of money so, the loan would need to be substantial for this type of action.
- Prosper Default – Another risk is that Prosper could go out of business, right? Well, yes, I suppose any business could eventually go belly up. But, in this case, I just don’t see that happening. They have been granted investments from the same investors that invested in people like Google’s Larry Page and Apples Steve Jobs. Sequoia Capital is known for doing their research and making the right investments and, they seem to be behind Prosper!
Now, Risks Of Being A Prosper Borrower
As with investing, any borrowing will always come with risks, risks of bad terms and poor lending practices are all at the forefront of minds of borrowers who are working with an unknown lender. The good news is, due to the SEC changes back in 2008, there really aren’t any risks here. Everything is held to strict full disclosure laws and, it’s up to you to choose the loans you agree to.
It works just like any other loan, the higher your credit score, the lower your interest rate and vice versa. Once your loan is granted, you are required to make monthly payments from which some is allocated to interest, some is allocated to principle balance and so on. There are late payment fees if you are late which are $15 but, that’s even lower than your average bank fee. The bottom line is, the risks are pretty low for borrowers that qualify!
Now, Let’s Get Into The Benefits Of Prosper To The Investors
As Mentioned above, every investment option has it’s cons but, they all have their pros as well and, Prosper has a lot to be proud of. They have used technology to take peer to peer lending to new heights. Here are my favorite features of Prosper…
- Ability To Choose Your Risk And Reward – As an investor, you know that the higher your risk, the higher your reward and the lower your risk, the lower your reward. Prosper gives you the ability to choose the loans at the risk and reward levels that make you comfortable with lending.
- Great Tools For Diversification – Knowing that some loans will have higher rewards and some lower, it’s best to diversify your investment portfolio. This is the same across all channels of investment from stock exchange to foreign exchange to peer to peer exchange. The basic principals are all the same. Prosper offers some of the most complex tools on the market to help you get a full understanding of your risks!
Benefits Of Prosper To Borrowers
There are a couple of benefits that I really like for borrowers that choose to use Prosper for borrowing. Here they are…
- Lower Interest Rates – Because the lending is peer to peer, there are no stockholders that the lenders have to report profit to. All the profit with the exception of a 1% fee for using Prosper all goes into the lender’s pocket. So, without the worry of enormous profits to please stockholders, it’s possible to get pretty low interest rate loans here.
- Low Fees – Most of the time, when borrowing from lenders, you are hit with tons of different fees. There’s account maintenance fees, interest rates, annual fees and more. The list can go on and on with some loans. This isn’t the case with prosper. You pay your interest rate and, there’s a $15 late fee if you’re late on a payment. No real Fuss.
My Overall Thoughts Of Prosper For Investors
Although there are lower risk investments out there, this is a pretty good one in my eyes. With the ability to set the level of risk you are comfortable with taking and the tools to diversify your investment portfolio, I can’t see why you wouldn’t want to give it a shot. But, remember, every financial option is unique and designed for a specific group of individuals. That being said, always start out with only a few bucks and see if it’s a platform that you can stand behind with bigger investments.
My Overall Thoughts Of Prosper For Borrowers
If I were in need of a loan and had the credit score to take part in Prosper peer to peer lending, I would definitely do it! Why not? The interest rates are pretty low, the fees are minimal and, the money gets to you pretty fast without the need to jump through rings of fire while whistling daisy and juggling bowling balls! Prosper is a good company that has a lot of backing, one that I’m actually considering working with personally after a conversation with my securities advisor.