Prosper.com provides a platform for the obtaining of and investing in loans of modest amounts, between $2000 and $25,000. The website states that Prosper, founded in 2006, is the largest peer to peer lending marketplace with over $236,000,000 in funded loans. Prosper connects people who want to invest money with people who want to borrow money. The quick view of the process is that borrowers post a loan listing that includes the amount and purpose of the loan, and investors invest in funding those loans that meet their investment criteria.
The actual process is, of course, somewhat more involved than that. Loans are of a one, three or five year duration and have interest rates and closing fees that are based on the their “Prosper Rating”. At present these fees range from .5% to 4.5% of the loan’s stated value. The Prosper Rating is Prosper’s in house rating of the relative risk of the loan based on other Prosper loans that have similar characteristics. These ratings affect the maximum loan amount, as well as interest rate and closing fees. There are seven Prosper rating grades listed on the website, starting with the top rating of AA, and ending with a rating of HR at the opposite end. As of this post the borrower’s APR could range from 6.93% to 35.64% depending on the Prosper rating, length of loan, and number of prior Prosper loans.
Prosper seems to allow an investor to choose to invest in the funding one loan, or diversify the investment to help minimize the risk by spreading the investment over many loans. The rate of expected return for an investor is tied to the Prosper Rating. The better the rating the lower the expected loss and thus the lower the expected rate of return. The more risk the greater the potential return. For Prosper loans originating from July 2009 – May 2010 the actual rate of return varied from 6.3% and averaged 10.4% per their website. Investors will pay a 1% annual servicing fee. All loans are unsecured and are made by WebBank, a Utah chartered industrial bank and sold to Prosper. Prosper does not guarantee any repayment of loan notes, but they do guarantee to pay the entire unpaid principal If a lender is the victim of a defaulted loan from a person who has committed identity theft.
Prosper the Company
Prosper was founded in 2006 and has over 1,080,000 members. Offices are located in San Francisco, CA. Chris Larsen is the CEO and Co-founder. Prior to Prosper, Larsen co-founded and served as CEO of E-Loan and made E-Loan the first company to show consumers their FICO scores.
Prosper.com puts borrowers and investors together and makes no guarantees of repayment to investors. They do provide a rating system that implies a scaled risk assessment that an investor may heed. The loans are indeed unsecured and that means no collateral, so it is buyer beware. However they have funded over $236,000,000 worth of loans. As always it is up to each of us to determine the viability of any business to meet our needs. So is Prosper.com a scam? The facts provided above should help you answer the question for yourself.
"Helping People Make Better Decisions Through Better Information"