Prosper personal loan review: Peer-to-peer lending for debt consolidation

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In a Nutshell

Prosper is a peer-to-peer lender that uses a proprietary “Prosper Rating” to assess the risk of potential loans. The most-creditworthy borrowers typically qualify for the lowest interest rates. So if your credit is less than perfect, you may want to look elsewhere, since the interest rate you may be offered could be very high. Plus, Prosper loans come with multiple fees and limited loan repayment terms.

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Pros Cons
Loan amounts starting at $2,000 Potentially high interest rates
No minimum income requirement Fees for loan origination, late payments and check processing
No prepayment penalty Limited loan repayment terms

A closer look at Prosper personal loans

Prosper isn’t a bank or credit union. It’s a peer-to-peer lending platform that allows institutions and individuals to earn interest by investing in loans to borrowers. Using its proprietary rating system, Prosper gives each potential loan a letter grade to help people decide whether to invest in it.

The most popular use for its unsecured personal loans is debt consolidation, with 66% of borrowers using their loan proceeds for that purpose. Home improvements and other large purchases are also common uses.

Low loan minimums

Loan amounts offered by Prosper range from $2,000 to $40,000, which may be ideal if you need to borrow only a few thousand dollars as an emergency loan for a car repair or medical bill. But if you’re looking for larger loan amounts, you’ll need to work with a different lender.

No minimum income requirement

You don’t need to earn a minimum income to qualify for a Prosper loan. But if you’re going to apply for a loan, it’s important to make sure you can repay it on time. Late and missed payments can negatively affect your credit.

You’ll need an established credit history — along with other factors — to qualify for a Prosper loan. You must have a minimum of three open tradelines on your credit reports, a debt-to-income ratio below 50%, no bankruptcies filed within the previous 12 months and less than five credit bureau inquiries within the previous six months. 

Potentially high interest rates

Prosper loan interest rates range from competitive to very high. If you have what Prosper considers “excellent” credit, you’ll be more likely to qualify for better rates. If your credit isn’t strong, you’re less likely to qualify for its lower rates.

In fact, the interest rates Prosper charges its least-creditworthy borrowers are much higher than the highest rates charged by some other personal loan lenders. If you can only qualify for Prosper’s highest rates, you may want to consider whether getting the loan is worth it. It may make more sense to explore a credit-builder loan.

Origination, late and check fees

A variety of fees may be attached to a Prosper loan. These fees can start to add up before you even get your funds.

  • Origination fee: An origination fee of 2.4% to 5% — based on creditworthiness — is applied to every loan and deducted from the loan amount before it’s funded. That means if you’re approved for a loan of $10,000 with a 5% origination fee, you’ll receive $9,500.
  • Late fee: If you haven’t made your full monthly payment within 15 days of the due date, you’ll be charged $15 or 5% of the payment amount, whichever is greater.
  • Check processing fee: If you want to make your monthly payments by check, you’ll be charged a check processing fee of either 5% of your payment or $5, whichever is less. But you can sign up for autopay to avoid this additional expense.

Limited repayment terms

Prosper offers only two repayment terms — three years or five years. If you want more flexibility to repay your loan, you may want to look elsewhere. Of course, with Prosper, if you’re looking for a shorter loan term, you can always pay off your loan early without a prepayment fee.

Who is a Prosper loan good for?

A Prosper loan may be right for you if you want to consolidate credit card debt, complete a home improvement project or finance an emergency expense. But Prosper loans can’t be used for postsecondary education expenses. And if you need a loan to pay for a medical procedure, Prosper has a subsidiary, Prosper Healthcare Lending, which specializes in offering medical loans.

Because of the origination fees and potentially high interest rates, Prosper loans are best for those with good credit who want small loan amounts. Prosper could also be a good choice if a three- or five-year term works for you.

If you’re still establishing your credit, looking for a loan larger than $40,000 or want loan funds quickly, Prosper probably isn’t your best bet.

How to apply with Prosper

Prosper loans are available to U.S. residents 18 and older — except residents of Iowa and West Virginia — with a bank account and Social Security number. If you meet those requirements, applying should be straightforward.

You can get started online by providing some basic information about yourself to check your potential interest rate. If you want to proceed after that, you’ll need to register as a borrower and create a listing for your loan request, which investors will review and decide if they want to fund.

You may be asked to provide documentation that supports the information you provide in your application.

And you might have to wait awhile to receive your money. After your loan is listed, investors have up to 14 days to fund it, and there’s no guarantee that it will be funded. But if your loan is funded, it typically takes one to three business days for the money to be deposited in your account.

Not sure a Prosper loan is right for you? Consider these alternatives. 

If you want to explore other personal loan lenders, here are some options to consider. 

  • Wells Fargo: A Wells Fargo personal loan may be a good choice if you want a larger loan amount and potentially faster funding than Prosper offers.
  • SoFi: If you’re looking for lower rates, fewer fees and more repayment options, a SoFi personal loan could be a better bet.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Tow… Read more.