A Lender’s Guide to Prosper

Most of us remember what it was like when the market crashed in late 2007. A chain of events led to one worst economic collapses since the Great Depression. Many people were getting laid off, and there were a record number of foreclosures. This led to a series of government bailouts that sent this country into a political panic. As a result, banks began to turn down loans to people who were once able to qualify. So, people started turning to private industry to get the money they need.

You might have heard of peer-to-peer lending before, which might be why you’re reading this article. Whether you’re hoping to make money from giving out personal loans, or whether you’re planning to dip your hand into a promising new startup, this concept has no doubt piqued your interest. Fortunately, with Prosper there’s room for both.

Signing up as a lender on Prosper is easy, but there are a few things you will have to do before you can get started. You will have to go through an identity verification process, and you will have to link a checking account so you can transfer money to Prosper for bidding purposes. It will also be used to deposit any loan payments or unused funds.

There is one thing you will have to bear in mind. Prosper loans are not secured by the FDIC. So, there is no guarantee you will get your money back if they go into default. That’s why you will have to evaluate every loan applicant carefully. All prosper loans have a three-year amortization period, which means that it will be broken down into 36 monthly payments. Once the loan is issued, Prosper will automatically draw the loan amount from the checking account you have linked with Prosper.

Types of Loan Listings

Loan listings on Prosper are similar to product listings on eBay. The borrower will request a certain amount of money, and lenders will have the opportunity to place a bid. The listings run for a certain number of days before they expire, and they all use a “reverse-Dutch” system. This means that lenders will have to compete on interest rates, which helps to keep them low. When you’re bidding on a loan, it’s best to start high and work your way downward.

There are two types of loan listings on Prosper:

  • Auction
  • Instant funding

Instant funding loan listings are similar to the “fixed price listings” on eBay. The listing will close once the full amount requested by the borrower has been funded.

Approving a Loan

As you go through the list of loan requests, you will be able to see a summary of each borrower’s credit history. This will help and guide you to determine his or her creditworthiness before you make a proposal. You cannot, however, see the borrower’s “personal identifying information” – at least, nothing that he or she does not wish you to see.

Prosper uses a variety of different numbers to analyze the creditworthiness of a borrower. These numbers are derived from the following:

  • Experian credit report
  • Prosper credit rating
  • Credit history
  • Debt-to-income ratio
  • Ownership of property

Prosper will also look at other factors related to his or her credit rating.

Conclusion

By now, you should have a somewhat clearer understanding of how lending money on Prosper works. While there is always a risk in giving out loans, Prosper makes it easy to review and evaluate each borrower based on a number of different factors. You will be able to check his or her credit score, and you will be able to see a brief breakdown of his or her credit history. While the loans are not secured by the FDIC, it is still a great way to loan or borrow money.