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Prosper Loans Review: My Experience Getting A Prosper Loan

Nine years ago, I took out an $11,500 debt consolidation loan from Prosper Loans to pay off credit cards over three years. Here’s how it worked out.


Prosper Loans ReviewAbout 10 years ago, I was struggling with nearly $80,000 of consumer debt — much of it from credit cards (stupid me!). Although I used many tactics to dig out of that debt in a little over three years, a debt consolidation loan from Prosper ended up being one very helpful tool.

Here’s a bit about my experience getting a loan from Prosper and a review of the service if you think it might be right for you.

About Prosper and my debt

I had been chipping away at an obscene credit card debt since college, but the high interest rates (between 18 and 22 percent) were making it nearly impossible to get very far ahead.

Despite having established credit and a perfect payment history (no late payments or defaults), the sheer amount of debt I was carrying made it impossible to get new credit like a 0 percent balance transfer credit card or even traditional debt consolidation personal loans. Debt counseling agencies were not an option for me because I had not defaulted, so they would hurt my credit rather than help it.

After reading about Prosper, I decided to give them a try.

Prosper is a peer-to-peer lending network that provides personal loans for any purpose, including:

  • Debt consolidation
  • Home improvement
  • Business start-ups

All loans have either a 36- or 60-month term and no prepayment penalty. Rates start at 5.99 percent.

You may borrow between $1,000 and $35,000 on Prosper for any reason. It’s fast and free to create a Prosper loan application online; your interest rate will be determined by your credit, income, and the number of investors bidding on your loan (the more investors that compete to lend you money, the lower your rate will go).

What is peer-to-peer lending?

Essentially, Prosper takes the bank out of the lending equation. Every day individual investors—not big banks—lend money to Prosper borrowers. As borrowers repay loans, investors earn back their principal plus interest.

For example, I applied for a Prosper loan three years ago to consolidate $11,500 of high-interest credit card debt. My loan was funded (and is now paid-in-full), saving me about 5 percent on interest…or about $1,200!

How to apply for a Prosper loan

Step 1. Pre-qualification

The first step to apply for a Prosper loan is to see if might qualify and what your rate will be. You enter your credit information and Prosper returns a likely range of interest rates. If they don’t think you can get approved, they’ll tell you that at this time.

This initial credit check is a “soft inquiry”, meaning it won’t appear on your credit report. The inquiry only appears if your loan is funded and initiated.

Step 2. Make a loan request

To move forward, you’ll need to set up a profile and loan request (it was about as easy as setting up a Facebook account). It costs nothing and there’s no obligation to finance unless your loan gets funded.

I asked for a loan of $11,500 to cover the balance on my highest interest rate credit card. In my profile I described, very honestly, my past mistakes and pointed people to my website to show my newfound appreciation for making sounder financial decisions. I used Prosper’s message boards to get advice for creating an appealing listing; one tip I received was to include my photo.

I asked for an interest rate of 16 percent, which was about average for my credit grade (B) and debt to income ratio (on the high side). Obviously, 16 percent is high, but it is still three percent less than I was paying.

Step 3: Lenders bid on your loan

The great thing about Prosper is that it is an auction environment: lenders compete with each other to get the best loans. If they think you’re a good credit risk, you loan could be funded very quickly. If not, your loan may not get funded at all. Fortunately, my loan was attractive, and my interest rate was bid down to less than 14 percent.

Step 4: Verification and funding.

My listing closed after seven days. Once the listing closed and my loan was funded, Prosper was in touch to re-verify my identity (not surprising they would want to do that before shooting 11 grand into my bank account!)

The verification process was stringent. I had to fax them at least my ID and two proofs of address (utility bills or credit card statements from within six months) and speak with a representative on the phone. However, once that process was complete, the money was transferred to me (minus a $150 origination charge) and my credit card balance was at zero.

Today, Prosper origination fees are between 2 and 5 percent of your loan amount. The better your credit, the lower the fee.

Prosper deducted payments from my checking account on the first of every month, which was perfect because my debt disappeared and I didn’t have to do anything. Eventually, I paid off my loan early with no penalty, so my total interest savings was about $2,000 compared to what it would have cost if I were paying off the credit card over 36 months.

Pros and cons of Prosper

I liked the idea behind Prosper even before it worked for me, but it may not be for everyone. The following pros and cons are from the borrower’s perspective. Now that I’m out of debt, I actually invest in peer-to-peer loans (paying the favor back, you could say), but here we’ll focus on the borrower’s side.

Pros

  • Loans are available to borrowers who may not qualify with traditional banks
  • Auction environment provides a possibility for better interest rates
  • Soft credit inquiry allows you to apply for a loan without it affecting your credit; the inquiry only posts if you fund the loan
  • Puts a human face on lending; borrowers have the ability to explain why they are a good investment
  • No early payoff penalties

Cons

  • For all but the best qualified borrowers, interest rates are still high
  • Origination fees of 2 – 5 percent
  • You’re limited to a 3- or 5-year loan term

Is Prosper for you?

I still think a Prosper loan is invaluable as a debt consolidation tool. If you can get a Prosper loan with an interest rate thats 5 percent or more lower than your credit cards, you can save a lot of money. Plus, you’ll have a fixed payoff schedule which helps make your debt payoff automatic. You just have to stop using credit cards!

Prosper loans may be useful for other uses, too, provided you have the good credit to qualify for single-digit interest rates. You could use a loan for anything from small home improvements to taking a class to starting a business.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.