Prosper Lending
In-Depth Guide for Prosper Lenders
Lenders sign up and provide their personal details to Prosper. They must pass an identity verification screening and verify a checking account. This checking account will be used to transfer funds into Prosper for bidding, as well as to transfer out any loan payments or uninvested funds that lenders do not wish to reinvest into loans.
Detailed Information about Prosper Loans
All Prosper loans are unsecured and are fully amortized over a fixed 3 year (36 payment) term (though loans of different durations planned for the future). After a loan has been issued, Prosper will initiate an automatic transfer from your borrower’s bank account for the full monthly payment amount due for their loan. Prosper then divides this money up between the lenders on the loan, depending on how much of the loan each lender owns, and credits the amount to your Prosper lending account.
Prosper Loan Auction Listings
There are two types of loan listings: Auction Listings and Instant Funding. An Instant Funding listing is one which will close once the full amount of the borrower’s request has been met by lenders. One can think of this as similiar to a “Fixed Price” listing on eBay. So, if a borrower is asking for $1k, then as soon as lenders commit a total of $1k to the listing, the listing will close at the rate the borrower specified. Please note that there is still an “auction” aspect to Instant Funding listings. If enough lenders offer enough funds at a bidding rate LOWER than that which the borrower has requested, the bids *will* compete with one another and only the bidders with the lowest interest rate offers at the time the loan reaches completion will actually participate in the loan. So, in some instances, it *is* possible to be outbid on an instant funding loan. If you bid the lowest rate that you are willing to accept, however, Prosper’s proxy bidding system will ensure that your bid will compete in the auction, and you will still be on the loan assuming that it closes above your minimum rate offer. A normal auction listing runs for a specified period of days. The auction style is “reverse-dutch”. In simplest terms, this just means that bidders will compete on interest rate, and that as more funds are bid at lower interest rates, the final loan rate will also lower accordingly. Borrowers can select the maximum interest rate that they’re willing to accept for the funds that they need to borrow. This rate is a starting rate for the auction, and doesn’t necessarily represent the final rate of the loan. (In fact, it’s often best to start high, attract more lender attention, and let the auction process take over.) Once the borrower has completed their listing and posted it to the marketplace, lenders are then able to bid on the loans and the more lenders who compete to place bids and lend the borrower money, the lower the borrower’s interest rate will fall. If at the end of the listing, the total amount requested by the borrower has been met, the loan will have successfully funded.
How to Begin Lending via Prosper
Every borrower is assigned a credit grade which is available to lenders. In addition, lenders are shown a summary of the various credit details of each borrower (be sure to view the “Advanced Details”). It is important to note that lenders are not shown any personally identifying information about the borrowers - nor are borrowers shown any identifying information concerning their lenders. All transactions occur behind “screen names”, and involved parties are therefore able to reveal as much (or as little) personally identifying information as they feel comfortable sharing. Prosper.com acts as an aggregator and pools the funds of the winning bidders, then issues the full amount of the loan to the borrower. Each month, Prosper will collect payments from the borrower (via automatic monthly ACH withdrawal from the borrower’s verified checking account. Prosper then divides and disburses those payments to the lenders (based upon how much money they contributed to funding that particular loan).
Prosper Lending Details
Lenders are shown a mixture of numerical data from each borrower’s Experian(tm) credit report, including such items as: the previously mentioned credit grade (AA-HR), the length of the borrower’s credit history, the number of current delinquencies, the current utilization of revolving credit (as a percentage), the total current revolving debt burden (as a dollar figure), the borrower’s debt-to-income ratio, the borrower’s homeownership status, and a number of other credit details. In addition to credit details, lenders are able to read the borrowers’ listing narratives. They then have the option of funding (or partially funding) the loan. The way that lenders fund a loan is by placing bids (in amounts as small as $50 per loan or as large as $25k, the maximum individual loan size) on each loan - thus the intuitive familiarity for anyone who’s ever used eBay. When placing a bid, lenders are asked for the amount they wish to bid, as well as the LOWEST interest rate which they are willing to accept. Prosper’s automated proxy-bidding system will bid down to this rate on the lender’s behalf should other lenders compete.
Prosper Lender Bidding Guidance
Lending to people over the internet, based on nothing but a review of their credit details and receipt of a (legally binding, but still “virtual”) promise to repay - may seem rather incredible - so it might be time to mention that Prosper is not a charity - and that lenders are not in the business of making “donations”. They’re expecting to get something out of this exchange too, and that’s where interests rates and bidding guidance come into play. When placing a bid, lenders will see a chart that shows the estimated return. It is highly advisable that lenders pay attention to this chart, as the information contained within it is based upon past performance of Prosper loans which have similar credit characteristics to the one you’re bidding on. There will always be more loans to bid on, so please do not feel pressure to bid at an irrational interest rate just so you can participate in a particular loan (unless, perhaps, you personally know the borrower and/or are bidding for non-economic reasons). Interest rates range from around 8% (generally for the borrowers with “good” credit histories) all the way up to 36% (generally for the borrowers with “high risk” credit histories) - but, at Prosper, lenders decide the ultimate rates of the loans. Prosper allows for both lenders and borrowers to join together in affinity groups to seek better rate treatment from the marketplace or to make it easier to find loans that might be of interest. These groups are often based around shared interests or pre-existing real-world affiliations. Please note that membership in a group does not in any way make the group responsible for the loan of the borrower you are bidding on.
What happens after a Prosper loan is funded and closes?
When Automatic-Funding listings are fully funded or when a successful rate-auction ends, loans then go into “Pending Review” status. During this time, Prosper may elect to request identity, income, and address verification documents from borrowers. Borrowers have 7 days within which to send in copies of whatever documentation is requested. Of the different types of documentation often requested, it is often important that you be able to verify your individual income. Borrowers who fail verification do not get a loan, and are permanently suspended from Prosper. Once Prosper has requested and received any verification documents, your loan should be originated within a matter of days. At this time, your bid on the loan will move from “Pending Review” status to “Originated”, and the loan will be visible in your portfolio. One month later, Prosper will begin automatically debiting your borrower’s checking account to collect monthly loan payments, and will continue to do so for either the full term of the loan or until the loan has been repaid in full. * Lenders take note: Prosper.com uses a proprietary & predictive credit scoring model called “Experian ScoreX PLUS(sm)” to assign credit grades. This is NOT the same as FICO(tm), and the Credit Grade you are assigned by Prosper may be somewhat different than the more traditional FICO(tm) or FICO(tm)-like scoring products with which you might be familiar.
