Peer to peer lending (P2P) is the fastest way for regular people to get affordable loans online. Prosper is one of a number of P2P services that have sprung up in the United States over the past decade or so. For users with a mid-to-strong credit score, reasonable interest rates and fast processing make Prosper more convenient and affordable than lending options from any other source. But with alternative options like Lending Club, why is Prosper a go-to option for many people? And what does Prosper offer to investors? We’ll take a look at many of the reasons why Prosper continues to be a dominant player in the still-evolving American P2P industry.
Prosper for Borrowers
For borrowers with a minimum credit score of 640, Prosper offers personal and personal-for-business loans of up to $35,000. Prosper was an early adopter of the P2P model, which takes the money of real individual investors and brokers loans for real individual borrowers. In practice, it takes no more than two weeks to get a loan request funded, especially if you have a higher credit score or a good loan repayment history (a trait typical of all Prosper users). If your loan takes longer than 14 days to be completely funded, the available funds will be released to you at that time. If your loan request fails to be 70% funded within 14 days, your request is canceled and you may re-apply. A borrower’s interest rate could be <7% – 35%.
That latter interest rate will be too expensive for most people, and will typically only be offered to people with the lowest allowable credit score, who also have a high debt-to-income ratio. For these people, a more traditional lending service will make more sense. But for people with excellent credit and low debt-to-income ratios, Prosper will offer a great interest rate for a loan, paid out MUCH faster than the funds would be issued by a bank. Loans are payable over three or five year terms. As mentioned above, they max out at $35,000 and may be issued for amounts as low as $2,000.
A Prosper application may be completed online, though helpful assistance is available by phone. An origination fee of 1-5% is deducted from your final loan amount, and is typical of lending services of this type. Prosper is not available in all states, as it must be approved by state legislators one at a time. But momentum seems to be in Prosper’s favor, and more US residents have access to loans and investment through Prosper than do not.
Prosper for Investors/Lenders
Prosper is an entirely different experience for investors, though not in a bad way. Investors begin by making a minimum investment of $5,000, which is divvied out in $25 chunks called “notes”. These notes are used to fund many different loan applications, each of which is selected according to how much risk tolerance the investor selects, and other factors. After a 1% Prosper fee and losses due to default, typical investor returns are 5-10%.
Prosper investors like a company like Prosper because of the quality of their borrowers. Because most Prosper users have a credit score of 700 or above, these are responsible borrowers and default losses are minimal. There are a variety of tools which allow investors to scan for potential loans and to keep track of their returns on a granular level. With practice, it’s an easy way to make money, diversified within itself, providing diversity to an investor’s overall portfolio.
Prosper is a lending option for the 21st century. Peer to peer is a way of cutting out the middle man, getting money to people who need it fast, and providing reliable investment dividends for investors. It’s a good bet for both parties. So whether you’re consolidating debt, building a new business, or making a big life purchase, it’s good to be a Prosper borrower. The same is true for Prosper investors, who year after year have made excellent returns, and should do so for many years to come.