How to Prosper on Prosper.com
Prosper.com is a revolutionary new way to borrow money.
Person to Person (P2P) lending has arrived on the internet. Regular people like you and me can now loan money directly to one another via a secure and community based online marketplace.
This guide provides tips and advice for new Prosper borrowers on key things to do (and not do) to help their loan get funded.
What is Prosper.com?
Prosper.com is an online auction for personal loans, with other people competing to lend you their money. Borrowers post a listing describing their loan, how much they want to borrow and the highest interest rate they are willing to pay.
Lenders then bid for a portion of the loan amount and the lowest interest rate they are willing to accept in return. Once enough bids are in to cover the loan amount, the interest rate can be bid down if enough lenders are willing to accept a lower rate.
The service opened to the public in February 2006 and has originated over $6 billion in loans. It was co-founded by Chris Larsen, who previously founded and was CEO of E-LOAN. One of the venture capital firms that have invested in Prosper.com is Omidyar Network which was established by Pierre Omidyar, the founder of eBay.
I am not an employee of or affiliated with Prosper.com in any way other than as a lender (according to Prosper's definition) on the site.
These tips are my observations of things that frequently trip up borrowers when posting their first listings. There are many variables that affect a loan's success. Using the tips on this lens will not guarantee that your Prosper.com loan gets funded.
Prosper Exits Quiet Period...Is Lending Again
Prosper.com recently announced that they completed their registration with the SEC and are lending again!
So borrowers can post new loan listings and lenders can bid on loans again. There are still some legal hurdles to clear in many states where lenders are not allowed to bid on loans. The good news is that borrowers are eligible to get a loan through Prosper in most states.
If you're in one of those ineligible states and want to borrow or lend money online, you can try other social lending sites but they may have similar limits.
1. Be Honest
- With Yourself - Evaluate why you want a loan, if you can afford a loan and how you will repay the loan. Remember that you can't borrow your way out of debt and some people may be better off working to correct their credit issues first.
- With Lenders - Be honest in your listing and when responding to lender questions. Prosper lenders are regular people who want to deal honestly with others.
2. Educate Yourself About Prosper
Like most things in life, education is key. It's important that you understand how Prosper works, what information lenders are looking for and what factors may affect your listing's success.
- Prosper Help Page
The official source of all Prosper information. Invest some time reading through this page, especially the Borrowing section.
- Prosper State Rate Caps and Lending Limits
Depending on your state's lending laws, the interest rate you can borrow at may be capped and/or you may be subject to a minimum loan amount. This page has a full listing of all state rate caps and lending limits for Prosper borrowers.
3. Educate Yourself About the Market
In any market, it helps to know what the going rates are. Several unofficial statistics sites have been developed to help borrowers and lenders access this information.
You should use these sites to determine what the average loan size and interest rate are for your credit grade. They also offer information on group funding and interest rates. Each provides the basics plus their own unique stats.
- Lending Stats - Statistics & Tools For Prosper Investors
This site focuses on stats from an investor's perspective (ROI, late loans, etc) which can help you better understand the market before posting your listing.
4. Write A Good Listing
A detailed and thought out listing description is crucial to your success, especially if you have a lower credit grade.
- Use Paragraphs - Please don't make people read a huge block of text with no breaks. Logically structured paragraphs make your listing much easier to read.
- Check Your Spelling & Grammar - You're trying to present yourself well here, invest a few minutes to check for typos.
- Be Clear & Concise - Your listing is limited to 4,000 characters so use them wisely. Don't waste them on unrelated information.
- Don't Copy Directly from Microsoft Word - Writing your listing in Word, or a similar program, is a good idea to spell and grammar check it. Just make sure to copy the text to Notepad or a plain text editor first, then copy from there to Prosper. Otherwise, the hidden characters that Word uses for formatting will be visible in your listing and will make it tough to read.
5. Include Key Information in Your Listing - "Just the facts, ma'am."
Know what lenders want to see and provide as much as you can. These include the following...
- What you need the loan for.
- How you will repay the loan. Including a summary of your monthly budget (income & expenses) is very helpful.
- Explanation of any negative credit information. If your credit information shows any delinquencies or public records, you can expect that lenders will want to know what they are.
6. Understand Groups
Prosper enables groups within the marketplace. These groups can be based on a common relationship (alumni of a college, residents of the same area, member of same profession, etc) or be open to anyone. The purpose of groups are to educate members, help borrower members find funding and to help lender members find good loans to invest in.
Each group is formed and run by a group leader who is just a member and not an employee of Prosper.com. Any member of Prosper can start a group. You do not need to join a group to borrow or lend on Prosper.com.
Some group leaders are good at helping borrowers with their listings and finding lender support. Other group leaders are not, so choose wisely if you are interested in joining a group.
Before joining a group:
1. Check around on the forums to make sure the group has a good reputation with lenders.
2. Check the group's rating. Less than 3 stars means that the group has a poor repayment history.
3. Contact the group leader and find out what the group does to help borrowers.
Avoid any group that guarantees you will get funded. No one can make that claim.
7. Auto Funding or Not? - Your decision...
Auto Funding simply means that once your loan is 100% funded, the listing ends and you get the loan at the original interest rate. With regular funding, your interest rate can be bid down as lenders compete for your loan (I have seen rates bid down over 5% on a listing).
- Auto Funding Pros & Cons
Pro - Attracts lender attention quicker.
Pro - Typically reaches 100% funding quicker.
Con - No chance for lenders to bid down your interest rate.
- Regular Funding Pros & Cons
Pro - Once loan is 100% funded, the "auction effect" occurs and your interest rate may be bid down.
Pro - Once loan is 100% funded, the lister can end the auction early at the current interest rate.
Con - Typically don't see many bids until last couple days of the listing.
Only you can decide which is right for you.
8. Don't Spam Lenders
Please read Prosper's policy on soliciting bids from lenders. Basically, any attempt to contact a Prosper lender via email or personal message (PM) to solicit a bid is considered spam. Some lenders will refuse to even consider a listing if they have been spammed by the borrower. Don't do it.
The exception to this is if your first listing did not fund and you relist. In that case, most lenders appreciate a PM that you have relisted, provided that they have already bid on your prior listing. Just don't directly request another bid.
Many borrowers feel that their listing won't be seen if they don't advertise somehow. Fear not, Prosper provides advanced search capabilities to lenders so that they can find listings that meet their personal criteria.
9. Post A Review Request on the Forum
Post a thread in the Borrowers forum asking for others to review and comment on your listing. You will get good, honest feedback on your listing and possibly interest some lenders into bidding on it.
Here are a few suggestions if you post...
- Only post a review request in the Borrowers forum. If posted in another forum, you will be asked to move it.
- Put a link to your listing in the posting. This will help lenders easily access your loan. If you relist, go back and edit your earlier post with the new link.
- Only create one thread for your loan. Don't create additional threads because (1) It makes it difficult for lenders to see information that was already discussed about your listing. (2) It clutters up the forum.
- Respond positively to questions. Depending on the details of your listing, you may get some tough questions. Lenders are just trying to understand your listing and why you are a better investment than someone else.
10. Verify Your Account
To verify that you are the legitimate owner, Prosper makes small transactions to your bank account that you need to confirm (similar to PayPal's verification process). Prosper.com starts the verification process once a borrower's listing has reached 5% funding. Do your part to complete this process as quickly as possible. If your loan is funded, you'll get your funds quicker if the account is already verified.
There used to be an icon on your listing page that indicated whether your bank account was verified or not. Lenders could include this in our search criteria to filter out listings with unverified accounts. Prosper has recently removed that ability.
11. Be Responsive & Positive
You will probably get questions about your listing from potential lenders via Prosper's message tool, the question and answer feature on your listing page or in the forums. Try to respond in a timely manner.
Report any inappropriate messages (spam, etc) to Prosper.
12. Use Your Profile
Once you post a listing, you cannot edit it. You can edit your Prosper user profile at any time. If you are repeatedly getting the same question from lenders or just want to post additional information about your listing, then edit your profile to include it.
Even if you have posted the info on the forum, put it in your profile. Not all lenders read the forum and those that do might miss the posting.
13. Protect Your Personal Information
You're still on the internet...
Do not provide your personal info such as Social Security number, date of birth, bank account IDs, etc. to anyone.
Your group leader or a lender might ask for a copy of your credit report or other documents to confirm information in your listing. You are not obligated to provide this.
If you do decide to share a copy of your documentation, make sure to black out the SSN, DOB, address, account numbers and other identifying information first.
Don't post your phone number or email address in your listing or on the forum. Both of those sites are accessible by anyone on the web.
14. After You Are Funded
Making your payments on time is the best way to thank your lenders for trusting their hard earned money with you.
If you do get in a position where you are going to be late on a payment, send a private message to your lenders and let them know what's up.
Some frequent questions I've received about Prosper.com
Q: My credit score is too low to apply or I couldn't get funded on Prosper. Do you know of any other sites I can try?
Q: Are you a group leader on Prosper?
A: No. I've considered it, but I don't have the time to do it properly and I think groups work best when the members have a pre-existing relationship.
Q: Is Prosper.com a legitimate company?
A: Yes. Real people are investing and borrowing money through the service.
Q: Can you help me with my loan listing?
A: Hopefully the information on this site was helpful to you. If you would like additional assistance, please use the Prosper help page, forums and/or find a good group to assist with your specific situation.
Personal Finance Web Sites
The web is full of information on improving your personal finances. These are some that I have used.
- Yahoo! Finance
Your one stop shop for personal finance information.
- The Simple Dollar
A very informative personal finance blog full of useful tips on reducing your expenses, getting out of debt and improving your life.
Full of information on borrowing, interest rates and credit.
- Annual Credit Report
This is the only authorized website to get free copies of your credit reports annually. Other sites may claim to provide them for free but then require you sign up and pay for other services.
- The Motley Fool
This site mostly covers personal investing but also has great information on everyday topics like buying a car, renting or buying a home and credit cards.