Before You Borrow at Prosper.com

Prosper.com Review

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Prosper.com is one of the original online peer-to-peer (P2P) lenders, and it’s still a large provider of personal loans. If you need to borrow money, it’s wise to include at least one online lender in your search, and Prosper is a decent option. Here’s a review of the service and what you should expect as a borrower.

What is Prosper.com?

Prosper.com is a website where borrowers and lenders meet. The original vision for Prosper.com was "an eBay for loans" where individuals with money could lend to individuals who need money.

Instead of borrowing from traditional banks and credit unions, you can borrow from a larger group of lenders.

Loans from Prosper.com are personal loans  – they can be used for almost anything you want. You do not need to pledge collateral to get approved. Instead, the loan is approved based on your credit and your income. You can repay over three or five years.

How Much does it Cost?

Borrowing from Prosper.com is often less expensive than using credit cards. This makes it a good option for consolidating high-interest rate debt. That said, a credit card promotion might beat Prosper.com – at least for a year or so – so it’s always worth comparing rates.

To borrow money from Prosper.com, you’ll pay an interest rate just like with any other loan, and you’ll pay an origination fee (called the “closing fee”).  Interest rates and fees are based on your credit score – the better your credit, the less you’ll pay.

Interest rates: the annual percentage rate (APR) on Prosper.com loans is between 5.99% APR to 36.00% APR. This rate includes fees, but the bulk of that cost is your interest expense.  Generally, the interest rate is lower than what you’d pay on credit cards.

Fees:  Prosper.com charges a closing fee, which comes out of your loan.

As a result, you won’t get the full amount you applied for – remember that when you’re deciding how much to borrow. The closing fee starts at 0.50% for borrowers with great credit and increases to 4.95%. Additional fees are charged if you miss payments. There is no prepayment penalty, so you can pay off your debt as quickly as you like.

Getting Approved

Some borrowers find that they have better luck getting approved online than they do with traditional lenders. Especially when it comes to big banks, getting g a loan can be difficult if you have less-than-perfect credit. However, you still need to meet certain criteria at Prosper.com.

Credit score: Prosper checks your credit at Experian, and you need a score of at least 640. Again, the higher your score, the less you’ll pay for your loan. Prosper.com has stated that borrowers with good credit are preferred, and the average credit score for approved borrowers is just over 700.

Debt to income ratio: lenders look at how much of your monthly income is available to repay loans by calculating a debt to income ratio. Prosper.com looks for a number below 50% for your new loan.

Income: you need to have income, but Prosper.com specifically says that retirees can borrow – so it doesn’t necessarily have to be from working at a job.

In addition, your credit report needs to be free of recent bankruptcies and excessive inquiries. If your credit report is “thin” because you’ve never borrowed before, you’ll need to build up your credit before applying with Prosper.com. Of course, if you’ve defaulted on a Prosper.com loan before, you’re unlikely to get approved.

How to Borrow

To borrow money, visit www.Prosper.com and submit an application. You’ll need to provide basic information about yourself (address and Social Security Number, for example), and you’ll also need to provide information about your income.

Prosper.com may require that you submit proof of income, which might mean sending in a copy of pay stubs or tax returns. Be sure to report your income accurately when you apply – you might need to back up any claims you make.

To receive funds, you’ll provide information about your bank account so that Prosper.com can send the funds directly to your checking account. Make sure you know where to find your account and routing numbers.

The entire process – from the time you apply to the funds hitting your account – can be done in about three days, assuming everything goes smoothly.

Is it Safe?

Prosper.com is a legitimate online lender that works with several million members. As long as you’re on the real Prosper.com site and you have a secure connection, it is safe to apply for a loan. That said, data breaches are a reality, and Prosper.com could someday get hacked (the same is true for any financial institution).

Borrowing money is always risky, so make sure it really makes sense to take on debt. Evaluate all of the alternatives – including selling what you don’t need and taking on extra work – and only borrow if you’re out of options. It’s often easy to get a loan, but you’ll need to repay – and you can’t predict how difficult that will become in the future.

Make a basic model of your potential loan using a spreadsheet or online calculator. See how your debt gets paid down (or not) over time, and how much you’re paying to borrow. This helps you make an informed decision.