Updated February 16, 2016
Prosper is a peer-to-peer lending platform that offers a quick and convenient way to take out loans with fixed and low interest rates.
It takes minutes to fill out an application to check loan terms and rates. And once pre-approved, you create a loan listing that appears in the Prosper* marketplace. From there, peer lenders select loans to invest in. Then when you’re fully approved and your loan is funded, the money is transferred straight to your bank account.
How easy is this process? Here we’ll share with you the nitty gritty details of a Prosper loan including how to qualify and the terms and fees. Plus we’ll compare it to other personal loan options with pros and cons.
Prosper Loan Qualifications
To apply for a loan you must be a U.S. resident who lives in a state other than New York, Vermont, Connecticut, Iowa, Maine, Pennsylvania or North Dakota. In addition, according the Prosper Prospectus (on page 55) applicants should have the following:
- A bank account and a Social Security number
- A credit score of at least 640 on the FICO 08
- No more than seven credit inquiries in the last six months
- A steady source of income
- A credit-to-debt ratio below 50%
- At least three open credit accounts, which include credit cards, loans and other lines of credit.
- No bankruptcies filed in the last year
Prosper currently offers fixed rate, unsecured personal loans from $2,000 to $35,000 with APR ranging from 6.68% to 35.97% and loan terms of 36 and 60 months.
The interest rate and amount you can borrow is determined by the Prosper Rating assigned to you at application. The Prosper Rating is a proprietary credit rating system Prosper created to maintain consistency while assessing loan applications.
The rating goes from AA to HR with AA being the highest. Applications with ratings on the higher end are approved for more money and lower interest rates. A breakdown of the loan terms and APR associated with each Prosper Rating is shown in the table below.
Your Prosper Rating and credit score range are shown on your loan listing in the marketplace to help lenders consider the risk of your loan before investing. A loan listing stays active for 14 days. After 14 days, your loan must be at least 70% funded for you to receive money. If your loan listing doesn’t get the minimum amount of funding it’s cancelled and you must apply again.
The Inside Scoop on Fees
The main fee associated with a Prosper loan is the origination fee. How much you pay for origination depends on your Prosper Rating and the fee ranges from 1% to 5%. The fee is deducted from the loan before it’s deposited into your account, which means you should account for the fee when you state how much you need to borrow.
The only other fees you may encounter while using Prosper are penalties for missed or returned payments. Failed payments incur a $15 charge. Late fees begin accumulating when payments are past 15 days late at either $15 or 5% of the unpaid installment amount, whichever one is greater.
Prosper Transparency Rating
We give Prosper a transparency rating of “A” because of its simple terms and minimal fine print. We also give it a high score because it allows you to check rates with a soft pull which won’t impact your credit score. Plus there are no fees required to borrow other than the origination fee and penalties for delinquency.
The Pros and Cons
We’ve given Prosper a top mark, but what are its pros and cons? Let’s dive into both the good and the bad of Prosper.
- There’s no fee for paying early or making partial payments.
- You can qualify for a Prosper loan with average credit.
- It only takes a few minutes to check for rates.
- Paying off a Prosper loan can reduce your interest for future Prosper loans.
- You only have a short window of time to secure funding from peer investors.
- The Prosper Rating is slightly ambiguous because it’s an internal metric, so it’s hard to predict your interest rate or origination fee before applying.
- The origination fee can get expensive depending on your Prosper Rating.
- Prosper APR is high compared to other personal loan lenders like SoFi and LendingClub.
Prosper Against the Competition
How does Prosper stack up to two major personal loan contenders: LendingClub and SoFi?
As mentioned, Prosper will approve applicants with average credit scores below 700 (if other minimum requirements are met) which is comparable to LendingClub*. However, Prosper APR is higher than LendingClub which caps at 32.99%. Prosper APR caps at 35.97%.
Out of all three personal loan options SoFi* has the absolute lowest APR range from 5.50% to 9.99%, but it also requires the highest credit score. Applicants with scores over 700 have the best shot at getting approved by SoFi.
As far as fees, SoFi also has an edge over both Prosper and LendingClub. SoFi doesn’t have an origination fee and charges less for late fees. Prosper and LendingClub charge an origination fee of 1% to 5% and late fees at $15 or 5%, whichever one is greater. SoFi charges the lesser of $5 or 4% for late fees.
Who can benefit the most from a Prosper Loan?
People with average credit who want to refinance or take out a cash advance will benefit the most from a Prosper loan. A Prosper loan beats relying on high-interest variable credit cards or payday loans with obscene terms when you need to borrow cash. However, if you have the qualifications to borrow from SoFi, it’s clearly the best option out of all three lenders discussed here because it has the lowest fees and APR.
The great thing about Prosper and these other online lenders is the ability to check rates several times with a soft pull. So shop around for rates at each one thoroughly before making any decisions.
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