Pros and cons of Prosper personal loans
Prosper’s personal loans come with a series of benefits and drawbacks.
- Good online experience: The entire loan process takes place virtually, so you may experience a fast turnaround time.
- Accessible to many borrowers: Prosper’s minimum required credit score is 640, so loans are available to borrowers with good to excellent credit.
- No prepayment penalties: While you can choose a term of either three or five years for repayment, Prosper does not charge any fees for paying your loan off early.
- Origination fee: Prosper’s origination fee ranges from 2.41 percent to 5 percent, a nonnegotiable fee that many lenders don’t charge.
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 (or closing fee) for its matchmaking services. Think of it like an application fee or a processing fee — a sunk cost that may or may not seem reasonable, but one that’s nonnegotiable. Some, but not all, lenders charge this fee.
Prosper offers loans that range from $2,000 to $40,000. Its personal loans carry a fixed annual percentage rate between 7.95 percent and 35.99 percent for first-time borrowers. 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.
The amount of time it takes to receive your loan depends on how quickly investors decide to fund your loan. Your listing will stay on Prosper’s marketplace for a maximum of 14 days. If you get 70 percent 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.
Fees and penalties
Prosper charges a few fees, the most significant of which is its origination fee. The origination fee varies depending on the terms of your agreement but ranges from 2.41 percent to 5 percent.
For example, if you are approved to borrow $10,000 and you’re charged a 3.5 percent 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 in the origination charge when calculating the total amount you’re looking to borrow.
You’ll be charged $15 if you don’t have enough money in your bank account to cover your monthly installment, and you’ll be charged either $15 or 5 percent of the unpaid installment amount for a late payment, whichever is greater. However, Prosper will not penalize you for paying your loan off early.
How to apply for a loan with Prosper
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.
First-time borrowers must meet the following criteria:
- Debt-to-income ratio of no more than 50%
- Stated income greater than $0
- No bankruptcies filed within the last 12 months
- Fewer than five credit bureau inquiries within the last six months
- Minimum of three open trades reported on their credit report
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 lower the grade, the higher the corresponding risk and interest rate on the loan. Origination fees typically skew lower for those with a better rating, too.
In some cases, Prosper may call your bank or your employer to verify your information. The company may also ask for supporting documentation to be uploaded to your account. The screening process typically takes about five business days.
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.
Lenders have to be willing to fund your request, so even if you’re granted favorable terms in the application process, 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.