Is Prosper Legit for Lenders?

Is Prosper Legit for Lenders?


The “making passive income” unicorn has arrived, and it’s name is Prosper Loans.  This is a peer-to-peer lending platform that anyone can begin to use with less than $100 and it’s great because it allows people to invest in loans for other people while taking the big name banks out of the equation.

The lender gets a higher return on their investment, the borrower gets a better interest rate, and this is the only guarantee of passive income I’ve found to date.

But let me tell you a little more about how I discovered this platform.

Before I became an Internet Entrepreneur teaching people how to create and market their own online businesses, I was a business minded individual who loved investing. In fact, I even traded stock as young as 15 years old.  I lost a quick $700.00 from my savings account when I discovered the password to my E*TRADE account.  If you’re wondering, yes…my Dad was furious.

I discovered Prosper Loans in 2008 and after reviewing all the information about peer-to-peer lending that I could, I decided that it would be a good idea to throw $1,000 into the Prosper platform to see how well it would do.

As of now my annualized return is 8.61% with my highest year yielding 13.05% and the account has $2793.72 (Screenshots below). Some of this is because I invested a little bit more money into the program, but the majority of it is because I keep reinvesting my own dividends and the account continues to grow.

I’m not a financial guru. I’m just a regular guy who enjoys investing and with this type of return you can probably understand why I’m such a fan of Prosper Loans and why I decided to write this blog post.

But enough about me, you’ve come here to learn if is legit and I’m here to tell you as a lender for the last 7 years, I feel it’s one of the best options out there for investors. But instead of taking my word for it, I’ll provide you with screenshots that show you my account performance to prove to you that my account is performing as well as I say it is.

Here’s what we will cover in this blog post:

  • The history and highlights of Prosper loans
  • Things to know about Prosper loans
  • My experience with Prosper loans (Screenshots included!)
  • My Prosper investing strategy

Disclosure: Please realize that this post contains several links to Prosper that are affiliate links. This means that if you open an account (at no additional cost to you) I will earn a small commission. Understand that I am an affiliate of Prosper Loans because I’ve been a lender for over seven years and have over $2,500 of my own money invested in the platform.

History and Highlights of Prosper Loans

Prosper Loans is based in San Francisco California and was the first peer-to-peer lending marketplace ever created. It was founded by Chris Larsen on February 5th, 2006. For those who don’t know, Chris was also the founder of E-loan.

From 2006 to 2009 the company operated under a variable rate model that allowed investors to bid on loans at rates which they determined. In other words, Prosper loans started as an auction style loan platform (like Ebay) that allowed lenders to bid on the best loans they could find.

In 2010, Prosper Loans filed a prospectus with the SEC that changed its business model to preset rates determined by Prosper based on a proprietary algorithm to determine a borrower’s credit risk.

Below are some key highlights about Prosper loans

  • Prosper’s 10.69% annualized rate of return, from July 2009 to September 2011 was independently audited by Ashland Partners & Company LLP in December 2011.
  • The company has funding from BlackRock, Sequoia Capital, Accel Partners, Agilus Ventures, Benchmark Capital, CrossLink Capital, DAG Ventures, Draper Fisher Jurvetson, Fidelity Ventures, Omidyar Network, Meritech Capital Partners, TomorrowVentures (an investment vehicle of Google Executive Chairman Eric Schmidt), and QED Investors.  In other words, there are a lot of very smart people invested heavily in Prosper Loans that really believe in the company’s mission and its ability to stand the test of time.
  • Loans originated through the Prosper marketplace are made by WebBank, a Utah-chartered Industrial Bank, which is regulated by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC).
  • Prosper Loans has funded more than $3 billion in loans.
  • Prosper Loans is focused very strongly in 2015 on improving the lender experience. I have to be honest, I didn’t feel like the lender experience was all that bad in the first place, but I’m glad to see that the company is focused even more on the investors of the platform.
  • 92% of the employees at Prosper participate as Prosper investors themselves. They believe in their own product, so you can trust they want to make you happy too.

Things to know about Prosper Loans

Although all the information above about Prosper has probably helped you understand how trustworthy the company is, I want to tell you a few things that I’ve learned while being on the Prosper Loans platform for just over seven years.

  • You will make money every single month.  Every loan you invest in is paid back monthly and you will get a fraction of the payment deposited directly back into your account.  This is why I guarantee it will generate you passive income, the only way it doesn’t work is if your loan defaults but if you invest in multiple loans and diversify, this won’t be a problem.
  • Microloans are different than what you are used to. Basically a micro loan is comprised of numerous people who give small amounts of money to create a pool of cash that is then handed to the lender.  This is exactly how Prosper works.
  • Your money is tied up when it is loaned. Unlike the stock market, once you invest in a loan on Prosper and it is funded, you can’t take the money out of the platform. Instead, you have to wait for the loan to mature and collect your monthly share of the loan repayment.
  • Loans will impact borrower credit. One of the first questions that I had about Prosper is whether or not the borrower’s credit is impacted if they default on the loan. The answer is yes, there credit is impacted and they can also be submitted to collections if they don’t pay.
  • You have to pay taxes on your interest. The income that you make from Prosper Loans will be taxed at the end of the year so you do have to pay that as you would with any other interest income.
  • It’s a win-win for investors and borrowers alike. To me, the cool thing about the Prosper platform is that borrowers can get a better rate while investors get a better return. Prosper takes a small one-time fee in each transaction to keep themselves a business, but it’s much less than what traditional banks do.

My experience with Prosper Loans

When I started investing at Prosper I really wasn’t sure whether or not the platform was legitimate. In 2008, I had been reading about peer to peer lending and thought that if I ended up investing $1000 and the company took my money and ran, I learned a valuable lesson and I’d never make the same mistake again.

Now, looking at everything seven years later, I’m very happy that I invested when I did because my money has grown considerably. If I have any regret about what I did in the past, it’s that I didn’t invest more money from the start.

Let me show you a screenshot of how well my account has performed. Please realize that the screenshots that I share with you below are to prove the validity of the Prosper loans marketplace and are not my attempt of gloating about my return.

Average Annualized Returns and Account Value
Is Prosper Legit for investors_Annualized Returns
As of now my account value stands at just under $2800 and most of that is the interest that I continue to reinvest into my account. Although I have made a few withdrawals over the years, I almost always reinvest my interest and this is what has grown my account so large. You’ll notice that from 2005 to 2008 (when Prosper was in its infancy) the platform didn’t give much of her turn at all but from 2009 on it has done an excellent job.

Annualized Returns by Purchase Period

Is Prosper Legit for investors_Annualized Returns by Purchase Period

Over time I’ve taken a more conservative approach to my investing on Prosper and I think that this is reflected in the annualized return numbers that you see with each of the years listed. I told a friend of mine about Prosper loans and he prefers to go after higher credit risk people, but that makes me a little too nervous because they may default and I’d much rather have a comfortable 8 to 10% return each year.

Additional Loan Information

Is Prosper Legit for investors_Additional loan info

This is a snapshot of all the loans that I’ve had over time. As you can see, I keep most of the money in my account invested at all times because I see it as a lost opportunity if I don’t have that money working for me. Beyond that, you’ll see that I’ve had 120 notes paid in full and 36 notes that were charged off.

If a note is charged off it means that the borrower didn’t pay their loan in good standing, but I can still get a percentage of the loan value if they settle after bankruptcy. I also want to point out that my loan charge offs are about 23% of the total loans that I’ve funded, but I think that a lot of this is because the first two years of the Prosper Marketplace weren’t the best and I’d be curious to see what my portfolio would look like if those two years weren’t included.

My Prosper investing strategy

Just like in any other investment, you have to have a strategy that you follow in order to be successful.

Do I think that my annualized return on Prosper of 8.63% can’t be beat?

No, absolutely not.

As I mentioned, I’m just a regular guy who enjoys the idea of investing and I’m confident that there are other people out there who could do better than I do but here is what I’ve done to succeed as a Prosper lender.

  • Credit above 680. I am meticulous about my credit and personally feel that anybody who is 680 or above is someone that cares about their credit rating. Sure, they may have had a few issues here and there but for the most part this is a respectable credit rating to me.
  • Never invest if someone has a bankcard utilization over 75%. To me, if you have utilized 75% of your credit that means that you aren’t disciplined with your money. I’m sure some people would argue with me on this point, but this is one of the rules that I stand by.
  • Invest in people who own a home. As a Prosper investor, one of the best things to know is that somebody has a house. Why? Because in case that this individual defaults on the loan and goes through a bankruptcy, they’ll be more likely to have to sell their house and I can recoup some of my losses from the bad loan when they do.
  • Investing in those with a AA credit score isn’t worth it. If someone has a credit rating of AA it means that they have near-perfect credit and the return is extremely low. In my experience, the few AA credit scores that I’ve invested in have yielded 2.46%. To me, that just isn’t worth investing in.
  • Diversify like crazy. One of the things that I love about Prosper is that the minimum amount that you can invest in a loan is $25. Because of this, you can diversify your portfolio so many times and even if one loan defaults, it’s not going to hurt you too badly. When I originally started I only invested $25 at a time, but now I invest $50 into each loan and will be bumping up to $75 per loan when I hit $3,000.
  • Reinvest all interest. Something that I love doing is reinvesting all of the interest that I make from Prosper back into the platform. I could withdraw these funds every month, but I think it’s much more fun to invest them back into the platform and watch my account grow exponentially.
  • Sort loans by most funded first. There’s a reason why certain loans are almost 100% funded. Whenever you search for loans to fund, I recommend that you sort first by the loans that are most likely to be funded.
  • Invest in loans valued at or below $10,000. My thought is that people borrow $10,000 or less, it is a pretty manageable amount of money to pay back if they work the monthly payment into their finances. The loans on Prosper can go much higher (currently as high as $35,000) but I just feel like if you invest in someone who borrows that sum of money they could easily default.
  • Allocate the most in A,B,and C Prosper ratings. After looking at my account, about 77% of all loans that I fund are within the A, B and C Prosper ratings. To me, these are all still responsible borrowers who are in need of money for various reasons. Although it’s not perfect, it’s given a pretty good return thus far.

Is Prosper Legit for investors_allocation

In closing, I personally feel that Prosper loans is a very legit lending platform and highly recommend that any investor who would like to safely invest their money serious consider investing at Prosper.  If you’d like to learn more, you can click here to view the Prosper lender welcome page.

What do you think of Prosper Loans?  Have you invested there?  Let everyone know in the comments below.

Leave a Comment:

Chris Phelps says October 10, 2015

Thanks for the post/info, I remember checking this out years ago but it made me nervous. Now I’ll give it another look.

    Ron Stefanski says October 11, 2015

    No problem, Chris!

    There’s no reason to worry, it’s a great service from my experience.

Roger says March 3, 2016

Great information. Checked for Canada and found “Lending Loop” which is just beginning. I put my name on their future information check box and will be doing your Mini Course. You are a great source of information!

Job Russ says June 27, 2019

I am appreciative that you wrote this. I just funded my account with $200 and mentally prepared to never see this $200 dollars again. Excited to see how it goes now.

    Ron Stefanski says June 27, 2019

    That’s a good way to approach it, but for me it continues to perform between 7-8%

Add Your Reply