How to Invest on Prosper.com
Familiarize yourself with Prosper on their website (listed above)., Research Prosper through other avenues., Become a Prosper member., Fund your Prosper account., Begin the lending process.
Step-by-Step Guide
-
Step 1: Familiarize yourself with Prosper on their website (listed above).
They are a relatively transparent organization, and the website presents a great deal of useful information regarding peer-to-peer lending. -
Step 2: Research Prosper through other avenues.
There are a number of online financial-advice sites, blogs and message boards that present a wealth of information not only about Prosper and its competitors but also about other investment options.
Do not enter into any investment without thoroughly investigating it first.
Consult with a fee-based, certified financial advisor (or with the most financially-savvy individual you know).
Peer-to-peer lending, a relatively new investment opportunity, is attracting a lot of attention and capital and may someday rival traditional institutions like banks and credit unions in the lending marketplace.
However, no investment is without risk, and you are well advised to give the matter careful thought before participating in peer-to-peer lending.
We are talking, after all, about unsecured loans to total strangers.
It is nevertheless true that some peer-to-peer lenders are making substantial returns on their investments through Prosper or similar sites.
Success in peer-to-peer lending (as in other investments) can be simply a matter of luck but usually requires a good deal of research, planning and careful consideration. , If Prosper appears to you to be a viable investment option and you decide to invest through them, the first step is to become a Prosper member.
They will ask you for some very basic, personal information in order to establish your identity and financial profile.
A Prosper member must be at least 18 years of age, have a Social Security Number, and have a bank account in his/her own name, which will be linked electronically to an account s/he will open with Prosper.
Prosper will not accept money from or send money to anyone who is not able to demonstrate a past history of financial responsibility.
Prosper observes certain minimum financial qualifications for its lender-investors in order to protect those members from the impulse to lend money they may need for their own regular living expenses.
Such financial qualifications vary from state to state, as mandated by the member's state of residence.
Prosper requires that all members electronically sign an agreement that acknowledges Prosper's terms of service.
In addition, Prosper advises all prospective members to read their prospectus before lending or borrowing any money on the Prosper platform.
You will be assigned
-- or you can choose
-- a member name (similar to a "screen name" on other websites).
This name grants you full anonymity but allows you to keep track of all your activities on Prosper. , You will open an account in your own name and be given the opportunity to transfer money from your linked bank account to your new Prosper account.
An electronic funds transfer usually takes two to three business days, but Prosper will grant an instant inbound transfer when the amount of money involved is between $25 and $10,000.
Members are allowed to transfer money either to or from their Prosper account at any time, subject to certain modest restrictions.
Any un-loaned funds in your Prosper account are held at an FDIC-insured, commercial bank unaffiliated with Prosper.
That money, while not loaned, earns no interest for the lender-member. , Prosper maintains a list of loan opportunities for lender-members to consider.
The list usually consists of several dozen or as many as several hundred prospective loans.
Each loan listing contains basic information regarding the amount, term, interest rate and purpose of the loan, as well as personal data on the borrower, such as income, credit profile, employment history and borrowing history.
Some of this information is provided by the prospective borrower, and some is provided by the credit-reporting agency Experian.
Prosper will attempt to verify this information but does not guarantee its accuracy.
The borrower is not expected to provide much information regarding his/her financial or personal qualifications or any details regarding the use of the requested loan.
The borrower remains completely anonymous.
The lender has limited borrower information on which to make a decision to lend money and yet must estimate the risk that may accompany lending money to a particular borrower.
The lender will view that risk while considering the amount of interest the lender stands to earn from such a loan.
Loans are listed for a maximum of 14 days and will expire if they fail to receive full funding from lenders during that time period.
Borrowers do have the option of accepting a loan if its funding level reaches 70% of the requested amount.
Borrowers also have the option of withdrawing a loan request before it receives full (or 70%, when applicable) funding.
Lenders, however, do not have the option of rescinding a loan commitment once they have made it.
If a loan expires or is withdrawn or canceled, any committed funds are immediately returned by Prosper to the lenders' accounts.
Occasionally Prosper will cancel a loan before it is originated in the event a borrower fails to meet certain expectations or to respect any of Prosper's policies and guidelines.
Prosper does have a financial interest in seeing that their loans are viable.
They make their money through fees that are enhanced when borrowers make regular and reliable monthly payments.
Once a loan is funded, Prosper will undertake a final review of the borrower's qualifications.
If the review is favorable, Prosper will draw up a formal note specifying terms of the loan and will withdraw money from the participating lenders' accounts and forward it to the borrower.
The borrower then enters into a monthly schedule of payments to Prosper until the loan (the note) is repaid.
Loans typically are repaid in one, three or five years, although there is no penalty for early repayment.
Each month Prosper divides the repaid funds proportionally between the lenders involved, according to their original investment.
Prosper keeps one percent of each loan payment as its fee for operating the platform.
In the event of a late payment by a borrower, Prosper will attempt to collect any overdue money in addition to late-fees and accrued interest.
In the event that a borrower becomes seriously delinquent in his/her payments, Prosper may elect to assign the loan to a collection agency.
Any funds thus collected will be credited to the lenders' respective accounts, less collection fees.
Any delinquent or defaulted loans will be reported to the major credit-reporting services.
Prosper is powerless, however, to force a borrower to meet his/her obligations when s/he is unable or unwilling to do so.
Prosper loans range from $2,000 to $35,000.
Lenders are allowed to invest as little as $25 in a loan and as much as the full amount requested by the borrower.
Lender contributions in a given loan typically start at $25 and climb into the hundreds of dollars.
In the case of institutional lenders, contributions will sometimes amount to several thousand dollars.
Borrowers are assigned a Prosper rating based on their perceived credit risk.
Prosper rates its borrowers from "AA" (lowest risk) through A, B, C, D, E and down to "HR" (high risk).
The lower the borrower's rating, the higher the interest rate s/he would be expected to pay.
Thus, the lender would be rewarded more for taking a higher risk in lending money.
Annual Prosper interest rates recently ranged from
7.12% to
29.56%.
Prosper tries to maintain interest levels that will be attractive to both borrower and lender alike, relative to the general interest-rate environment within the larger financial marketplace.
For lenders the bottom line is that---according to Prosper---the average Prosper lender/investor realizes an annual return of just under nine percent on his/her investment.
In practice, that return can vary significantly from lender to lender, depending on the degree of success each lender enjoys in avoiding loan defaults, as well as the amount of risk the lender is willing to take.
As with any investment, there is a chance that a Prosper lender could lose money rather than make it.
A conservative approach is advised, at least until the lender has learned the finer points of loan picking. (More on this later.) Prosper will calculate and publish the "expected return" on each proposed loan.
This is based on the historical returns typical of past Prosper borrowers with credit profiles similar to the borrower being considered.
It is then up to the lender/investor to decide whether the prospective borrower represents a risk appropriate to the amount of interest s/he would be scheduled to pay.
If the lender decides in the affirmative, s/he then commits a sum of money from his/her Prosper account, joining with other lenders to fund the loan.
At any one time Prosper may offer up to several hundred loan listings for lenders to peruse.
This can involve a great deal of the lender's time, especially if s/he chooses to help fund more than just a handful of loans. (Some lenders participate in hundreds of loans at a time, which is a good way to diversify--and thus protect--a lender's investment.) To help speed the process, Prosper offers a faster way of picking loans in which to invest.
Prosper's "Quick Invest" is an automated program that picks out loans for a lender's consideration, based on criteria the lender chooses (such as a borrower's credit score, income, or debt-to-income ratio).
The lender can choose to review each loan thus culled by Prosper before investing, or s/he can let Prosper automatically invest a pre-selected sum of money to each such loan on the lender's behalf.
Either way the lender saves some time.
Another time-saving feature offered by Prosper is their "filtering" system that allows lenders quickly to find loans that meet whatever borrower profiles the lender selects.
The lender can set up a filter to find borrowers at a certain level of income or debt, a given credit score or a record of successful Prosper loan payments in the past.
There are many filtering criteria the lender can choose, and Prosper will find matching loans quickly anytime the lender is ready to view them.
Prosper affords its lender-members the opportunity to sell the notes associated with their loan portfolio.
This secondary market for loans gives lenders some measure of liquidity.
Thus they don't have to hold a note throughout its one- to five-year term if they can find a buyer for it.
This platform, administered by the online investment brokerage FOLIOfn, also allows lenders to buy additional, already established Prosper loans after examining the payment history of the borrowers involved.
Quite a few existing Prosper notes are bought and sold in this secondary market and represent a significant portion of some lenders' portfolios. -
Step 3: Become a Prosper member.
-
Step 4: Fund your Prosper account.
-
Step 5: Begin the lending process.
Detailed Guide
They are a relatively transparent organization, and the website presents a great deal of useful information regarding peer-to-peer lending.
There are a number of online financial-advice sites, blogs and message boards that present a wealth of information not only about Prosper and its competitors but also about other investment options.
Do not enter into any investment without thoroughly investigating it first.
Consult with a fee-based, certified financial advisor (or with the most financially-savvy individual you know).
Peer-to-peer lending, a relatively new investment opportunity, is attracting a lot of attention and capital and may someday rival traditional institutions like banks and credit unions in the lending marketplace.
However, no investment is without risk, and you are well advised to give the matter careful thought before participating in peer-to-peer lending.
We are talking, after all, about unsecured loans to total strangers.
It is nevertheless true that some peer-to-peer lenders are making substantial returns on their investments through Prosper or similar sites.
Success in peer-to-peer lending (as in other investments) can be simply a matter of luck but usually requires a good deal of research, planning and careful consideration. , If Prosper appears to you to be a viable investment option and you decide to invest through them, the first step is to become a Prosper member.
They will ask you for some very basic, personal information in order to establish your identity and financial profile.
A Prosper member must be at least 18 years of age, have a Social Security Number, and have a bank account in his/her own name, which will be linked electronically to an account s/he will open with Prosper.
Prosper will not accept money from or send money to anyone who is not able to demonstrate a past history of financial responsibility.
Prosper observes certain minimum financial qualifications for its lender-investors in order to protect those members from the impulse to lend money they may need for their own regular living expenses.
Such financial qualifications vary from state to state, as mandated by the member's state of residence.
Prosper requires that all members electronically sign an agreement that acknowledges Prosper's terms of service.
In addition, Prosper advises all prospective members to read their prospectus before lending or borrowing any money on the Prosper platform.
You will be assigned
-- or you can choose
-- a member name (similar to a "screen name" on other websites).
This name grants you full anonymity but allows you to keep track of all your activities on Prosper. , You will open an account in your own name and be given the opportunity to transfer money from your linked bank account to your new Prosper account.
An electronic funds transfer usually takes two to three business days, but Prosper will grant an instant inbound transfer when the amount of money involved is between $25 and $10,000.
Members are allowed to transfer money either to or from their Prosper account at any time, subject to certain modest restrictions.
Any un-loaned funds in your Prosper account are held at an FDIC-insured, commercial bank unaffiliated with Prosper.
That money, while not loaned, earns no interest for the lender-member. , Prosper maintains a list of loan opportunities for lender-members to consider.
The list usually consists of several dozen or as many as several hundred prospective loans.
Each loan listing contains basic information regarding the amount, term, interest rate and purpose of the loan, as well as personal data on the borrower, such as income, credit profile, employment history and borrowing history.
Some of this information is provided by the prospective borrower, and some is provided by the credit-reporting agency Experian.
Prosper will attempt to verify this information but does not guarantee its accuracy.
The borrower is not expected to provide much information regarding his/her financial or personal qualifications or any details regarding the use of the requested loan.
The borrower remains completely anonymous.
The lender has limited borrower information on which to make a decision to lend money and yet must estimate the risk that may accompany lending money to a particular borrower.
The lender will view that risk while considering the amount of interest the lender stands to earn from such a loan.
Loans are listed for a maximum of 14 days and will expire if they fail to receive full funding from lenders during that time period.
Borrowers do have the option of accepting a loan if its funding level reaches 70% of the requested amount.
Borrowers also have the option of withdrawing a loan request before it receives full (or 70%, when applicable) funding.
Lenders, however, do not have the option of rescinding a loan commitment once they have made it.
If a loan expires or is withdrawn or canceled, any committed funds are immediately returned by Prosper to the lenders' accounts.
Occasionally Prosper will cancel a loan before it is originated in the event a borrower fails to meet certain expectations or to respect any of Prosper's policies and guidelines.
Prosper does have a financial interest in seeing that their loans are viable.
They make their money through fees that are enhanced when borrowers make regular and reliable monthly payments.
Once a loan is funded, Prosper will undertake a final review of the borrower's qualifications.
If the review is favorable, Prosper will draw up a formal note specifying terms of the loan and will withdraw money from the participating lenders' accounts and forward it to the borrower.
The borrower then enters into a monthly schedule of payments to Prosper until the loan (the note) is repaid.
Loans typically are repaid in one, three or five years, although there is no penalty for early repayment.
Each month Prosper divides the repaid funds proportionally between the lenders involved, according to their original investment.
Prosper keeps one percent of each loan payment as its fee for operating the platform.
In the event of a late payment by a borrower, Prosper will attempt to collect any overdue money in addition to late-fees and accrued interest.
In the event that a borrower becomes seriously delinquent in his/her payments, Prosper may elect to assign the loan to a collection agency.
Any funds thus collected will be credited to the lenders' respective accounts, less collection fees.
Any delinquent or defaulted loans will be reported to the major credit-reporting services.
Prosper is powerless, however, to force a borrower to meet his/her obligations when s/he is unable or unwilling to do so.
Prosper loans range from $2,000 to $35,000.
Lenders are allowed to invest as little as $25 in a loan and as much as the full amount requested by the borrower.
Lender contributions in a given loan typically start at $25 and climb into the hundreds of dollars.
In the case of institutional lenders, contributions will sometimes amount to several thousand dollars.
Borrowers are assigned a Prosper rating based on their perceived credit risk.
Prosper rates its borrowers from "AA" (lowest risk) through A, B, C, D, E and down to "HR" (high risk).
The lower the borrower's rating, the higher the interest rate s/he would be expected to pay.
Thus, the lender would be rewarded more for taking a higher risk in lending money.
Annual Prosper interest rates recently ranged from
7.12% to
29.56%.
Prosper tries to maintain interest levels that will be attractive to both borrower and lender alike, relative to the general interest-rate environment within the larger financial marketplace.
For lenders the bottom line is that---according to Prosper---the average Prosper lender/investor realizes an annual return of just under nine percent on his/her investment.
In practice, that return can vary significantly from lender to lender, depending on the degree of success each lender enjoys in avoiding loan defaults, as well as the amount of risk the lender is willing to take.
As with any investment, there is a chance that a Prosper lender could lose money rather than make it.
A conservative approach is advised, at least until the lender has learned the finer points of loan picking. (More on this later.) Prosper will calculate and publish the "expected return" on each proposed loan.
This is based on the historical returns typical of past Prosper borrowers with credit profiles similar to the borrower being considered.
It is then up to the lender/investor to decide whether the prospective borrower represents a risk appropriate to the amount of interest s/he would be scheduled to pay.
If the lender decides in the affirmative, s/he then commits a sum of money from his/her Prosper account, joining with other lenders to fund the loan.
At any one time Prosper may offer up to several hundred loan listings for lenders to peruse.
This can involve a great deal of the lender's time, especially if s/he chooses to help fund more than just a handful of loans. (Some lenders participate in hundreds of loans at a time, which is a good way to diversify--and thus protect--a lender's investment.) To help speed the process, Prosper offers a faster way of picking loans in which to invest.
Prosper's "Quick Invest" is an automated program that picks out loans for a lender's consideration, based on criteria the lender chooses (such as a borrower's credit score, income, or debt-to-income ratio).
The lender can choose to review each loan thus culled by Prosper before investing, or s/he can let Prosper automatically invest a pre-selected sum of money to each such loan on the lender's behalf.
Either way the lender saves some time.
Another time-saving feature offered by Prosper is their "filtering" system that allows lenders quickly to find loans that meet whatever borrower profiles the lender selects.
The lender can set up a filter to find borrowers at a certain level of income or debt, a given credit score or a record of successful Prosper loan payments in the past.
There are many filtering criteria the lender can choose, and Prosper will find matching loans quickly anytime the lender is ready to view them.
Prosper affords its lender-members the opportunity to sell the notes associated with their loan portfolio.
This secondary market for loans gives lenders some measure of liquidity.
Thus they don't have to hold a note throughout its one- to five-year term if they can find a buyer for it.
This platform, administered by the online investment brokerage FOLIOfn, also allows lenders to buy additional, already established Prosper loans after examining the payment history of the borrowers involved.
Quite a few existing Prosper notes are bought and sold in this secondary market and represent a significant portion of some lenders' portfolios.
About the Author
Lori Castillo
Dedicated to helping readers learn new skills in lifestyle and beyond.
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