Prosper personal loans: 2017 comprehensive review

Prosper.com

Prosper is a personal loan pioneer. The company, which became the first firm to enter the peer-to-peer lending arena when it launched in 2006, offers unsecured loans to customers with fair to excellent credit. Although borrowers must have a minimum credit score of 640 to qualify, the typical Prosper borrower has a score above 700.

Prosper has originated more than $8 billion in personal loans by matching would-be borrowers to potential investors through its online platform.

Who is this loan good for?
Lending terms
Minimum borrower requirements
Fees and penalties
How to apply
What to do if you’re turned down

Because the screening process for its unsecured personal loans is entirely virtual, there are fewer loan underwriting costs, which means Prosper may be able to offer better interest rates and quicker turnaround times than brick-and-mortar lenders.

Who is a Prosper personal loan good for?

  • Anyone with good to excellent credit. Prosper borrowers have an average credit score of 707. The minimum credit score required is 640, according to the company. Check your credit score for free before you apply.
  • High-income earners. Prosper borrowers have an average annual income of $78,046. Real median household income in the U.S. is about $56,500.
  • Consumers with a low debt-to-income ratio. That’s the amount of debt you have compared to your gross monthly income. The average Prosper borrower has a 17.50% DTI, although the maximum allowable is 50%. Calculate your debt-to-income ratio before applying.
  • Someone who doesn’t need a co-borrower. Prosper, like many other online lenders, does not allow joint borrowers on a single loan. If your credit or income aren’t good enough to qualify on your own, you may want to consider using a different lender.
  • Someone who doesn’t mind an entirely online experience. The entire process takes place virtually — from applying for a loan to receiving approval to having the money deposited in your bank account if you are funded.
  • Someone who doesn’t need money immediately. You won’t receive anything unless at least 70% of your loan is funded, and even then you’ll only receive the portion that’s funded. So, if only 75% of the $10,000 you’re looking to borrow is funded, you’ll only receive $7,500.

Who should not accept a loan

  • Anyone with bad credit. If you have less-than-stellar credit and you’re quoted a double-digit annual percentage rate along with a steep origination fee, you may be better off with a different type of loan.

Consider applying for a balance transfer credit card or a home equity loan if either of those offer more favorable terms.

Lending terms

When you get a loan from Prosper, you’re not actually getting the money from Prosper. Instead the company acts as a broker, matching investors with would-be borrowers and charging an origination fee for their matchmaking services. Think of it like an application fee or a processing fee — a sunk cost that may or may not seem reasonable, but it’s non-negotiable. Some, but not all lenders, charge this fee.

Prosper offers loans that range from $2,000 to $35,000. Its personal loans carry a fixed annual percentage rate of between 5.99% and 35.9%. The quote you receive is based on multiple factors, including credit history, the amount you’re asking for, and if you want 36 or 60 months to pay it off.

Prosper borrower snapshot
Borrower average
Loan size $12,774
Annual percentage rate 16.99%
Income $78,046
Credit score 707
Debt-to-income ratio 17.50%

Prosper’s origination fee, which it calls a closing fee, is an upfront cost taken off the top of the loan. The fee varies depending on the terms of your agreement. For example, if you are approved to borrow $10,000 and you’re charged a 3.5% origination fee, you’ll only receive $9,650. Keep in mind, though, that you’ll be making payments on the entire $10,000. You should factor the origination charge when calculating the total amount you’re looking to borrow.

The amount of time it takes to receive your loan depends on how quickly enough investors decide to fund your loan. Your listing will stay on Prosper’s marketplace for a maximum of 14 days. If you get 70% or more of your loan funded, you can borrow the funded amount. If you don’t get enough investors you can try relisting your loan request.

Minimum borrower requirements

The minimum credit score to borrow is 640, but that’s not the only factor Prosper considers in evaluating an application. Would-be borrowers must also have:

  • A debt-to-income ratio of less than 50%.
  • An income greater than zero.
  • No bankruptcies within the last 12 months.

You also may be turned down if you have seven or more credit inquiries within the last six months or fewer than three open credit cards or loans.

Fees and penalties

  • Prosper charges an origination fee of 0.50% to 4.95% depending on creditworthiness.
  • You’ll be charged $15 if you don’t have enough money in your bank account to cover your monthly installment.
  • Late payment fee is either 5% of the unpaid installment amount or $15, whichever is greater.
  • You won’t be penalized for paying off your loan early.

How to apply

Like its online brethren, Prosper aims to give prospective borrowers loan information in just a few clicks. Fill out some basic identifying information like how much you’re looking to borrow and what the money will be used for (debt consolidation is the most common use) and get an answer within a minute or two.

Prosper then will conduct a “soft” credit check, which won’t impact your credit rating.

If you’re approved, Prosper, like all lenders, will perform a “hard” inquiry, which will be noted on your credit report and can impact your credit score.

Behind the scenes, Prosper gives your loan a letter grade, AA, A, B, C, D, E or HR for high risk. The higher the letter, the higher the corresponding risk and interest rate on the loan.

Origination fees typically skew lower for those with a better rating, too.

How Prosper compares
Prosper Lending Club
Loan amounts $2,000 to $35,000 $1,000 to $40,000
APR range 5.99% to 35.9% 5.99% to 35.89%
Origination fee 0.50% to 4.95% 1% to 6%
Minimum credit score 640 660
Time to funding 3 to 5 days 14 days
Soft credit check with application? Yes Yes

Investors decide if they want to back your loan by reviewing your information anonymously and choosing to fund all, or more often, a portion of your loan. In return, they receive a percentage back above their investment amount once you’re fully paid up.

In some cases, Prosper may call your bank or your employer to verify your information. They company may also ask for supporting documentation to be uploaded to your account. The screening process typically takes about seven business days.

Lenders have to be willing to fund your request, so even if you’re granted favorable terms, there is a chance you won’t get any money. If that happens, you can reapply by repeating the process. Keep in mind that if you’ve been late on a previous or current Prosper loan, you may not get approved for another one.

What to do if you’re turned down

If Prosper rejects your application and you believe your financial standing is strong enough, consider asking for clarification. The explanation could be as simple as a processing error. Or there may be a negative mark on your credit report that you need to investigate.

If your credit is weak, consider applying for a personal loan from OneMain Financial. A secured credit card is another option, which can help you rebuild your credit.

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