Prosper, found at prosper.com, is the first peer to peer (p2p) lending marketplace in the United States. Prosper Marketplace, Inc. was launched in 2006, and is headquartered in San Francisco, CA. At the time of this review (2012) Prosper has 1,360,000 members, with $353,000,000 in funded loans. So prosper is not only the first peer to peer lending company in the U.S. but also the largest.
As is often the case with completely new business models, Prosper has gone through some changes since it’s inception. The original model of having “auction style loans” has been changed, and since December 19, 2010 Prosper determines pre-set rates based on the borrowers Experian credit score combined with the proprietary “Prosper Score”… which results in what they call their “Prosper Rating”.
The higher a borrower’s rating, the less interest they have to pay – and the lower the risk of default to the investors. In turn borrowers with a lower rating would pay a set higher interest rate, which brings a higher return to investors but also a higher risk of default.
The concept behind peer to peer (p2p) lending was simple – match people wanting to lend money with people interested in borrowing, and cut out the “middle man”… the banks.
The industry has passed the $1 billion mark in total loan volume. This idea has gained widespread support, credibility, and growth from both lenders and borrowers.
Investors can earn 6-10% or more on their investments, and borrowers are able to get lower rates than through traditional channels in areas like loan consolidation, paying off credit card debt, small business loans, etc.
Prosper itself makes money by charging a fee for it’s services – which includes handling all loan administration tasks such as loan repayment and collections on behalf of the lenders and borrowers. Borrowers pay an origination fee of between 0.5%-4.5% depending on their Prosper Rating. Lenders pay Prosper a 1% annual servicing fee.
Borrowers can get loans for up to $25,000, and the amount of interest they would pay varies depending on their Prosper Rating, plus the type of loan, and the amount of time they take to pay it off (1,3, 0r 5 years).
Investors can fund anywhere from $25 to the full $25,000 per loan request. Funding small increments on many loans is called diversification and thus decreases the investors’ risk. Basically, the more risk an investor takes, the higher return they could receive. I would personally suggest following their guidelines about lending small amounts over numerous loans as opposed large amounts to a single borrower.
The seasoned returns for investors since Prosper’s relaunch in 2009 – across the entire credit spectrum, and including credit
losses and servicing costs – have consistently been around or (more often) over 10%. Of course these numbers fluctuate and are not a guarantee of future earnings, but the good news is it has been quite consistent to this point. Again, this is the seasoned return across all loans – factoring in lower and higher risk loans – so you could make somewhat less or considerably more depending on what types of loans you chose to participate in funding. All of this data is published on their website and is publicly verifiable.
Since the p2p (peer-to-peer) lending model has proved successful and is gaining widespread momentum and rapid growth, institutional investors have taken notice of the concept and are getting on board – further fueling the industry in general and Prosper in particular.
Prosper was founded by Chris Larsen (founder of E-loan) and John Witchel. Larsen has moved from CEO to Chairman of Prosper, and Dawn G. Lepore (former Chairman and CEO of drugstore.com) is Prosper’s current CEO.
Prosper is backed by Accel Partners, Volition Capital, Crosslink Capital, TomorrowVentures, Draper Fisher Jurvetson, QED Investors, CompuCredit, DAG Ventures, Meritech Capital, and the Omidyar Network.
You can be a borrower with Prosper if you reside in any of the United States except Iowa, Maine and North Dakota.
You can be a lender if you reside in any one of the following 29 states: Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.
Prosper also has a program where you can refer a friend which pays you $100 for each person who gets a personal Prosper loan. In addition, they have an affiliate program in which you can participate through a number of third-party affiliate networks.
In my opinion, Prosper Marketplace, Inc. is a solid, proven company with great backing and standing in the financial industry. The concept itself – peer to peer lending – is also a very good idea in our changing times.
Why do everything through banks – especially at a time when it’s harder and harder to get loans – when you can, as they say, “cut out the middleman”? (A middleman that naturally has a higher overhead than an online lending institution.)
If you are looking for a way to invest your money that will not only help others, but has a solid track record of a good return on your investment… this is it!
I highly recommend Prosper – Prosper Marketplace, Inc.!
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