Investing is one of the best ways for people to achieve their goal of financial freedom or at least to have enough money to spend when they retire.
The reason for this is that when you invest, you’re basically making your money work for you. It’s possible to achieve growth of about 5% to 20% annually, depending on the investment vehicle.
That is huge, especially if you compare it to the meager rate that most banks offer on their savings accounts.
A lot of people are already aware of this, which is why there are thousands of companies out there that offer various investment opportunities to help people grow their money.
One such investment opportunity that you will likely come across is the one offered by Prosper. The company provides unsecured personal loans.
As an investor, you can basically invest in those loans and be one of the people who lends money to the borrowers. It’s basically a peer-to-peer lending company.
The interest rates you can earn here varies greatly, but historical data shows that investors earn about 3.5% to 10.1% investing in loans. But is this opportunity offered by Prosper really legit or is it just a scam that you should avoid?
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Prosper is a Legit Company that Offers Investment Opportunity
Prosper is a peer-to-peer lending company that provides a platform for both borrowers and investors to meet.
Founded in 2005, the company basically offers an opportunity for people to borrow money and pay it back at a specified interest rate.
The money they borrow comes from other people who are willing to lend their money and get it back with interest. The interest rate is determined by several factors, including how risky the borrower is.
Based on what I’ve seen so far, I can say that Prosper is a legitimate company that offers an investment opportunity.
You can really grow your money with this company and you can also take comfort from the fact that they have already been operating for almost 15 years.
The longevity is a good sign that the company is doing something right to operate this long. Of course, this doesn’t mean that there aren’t any issues or complaints about Prosper.
One of the main issues with this opportunity is that the investment they offer is slightly riskier. Another issue I saw is that the company has fewer loans available to invest in.
Lastly, this investment opportunity is also not available in every state, so not everyone will have the opportunity to make money with Prosper.
I’ll discuss in more detail the issues and concerns as we progress further in this review of Prosper.
Who Uses Prosper?
Prosper is designed for two types of people, the people who are looking to borrow money without the hassle and time-consuming process of banks. And the other are people who are looking for investment opportunities where they can grow their money.
For borrowers, the company offers them an opportunity to apply for a personal loan without having to go through the usual long review process that banks usually have.
You just need to have a credit rating of at least 640 and a substantial annual income. Though the company doesn’t have a minimum income requirement, the average income of their borrowers is $89,000.
The rate that a borrower gets will depend on how risky it is to lend them money. But the typical annual interest rate on a loan is 6.95% to 35.99%.
The money is deposited within 1 to 3 days once approved and repayment is usually 3 to 5 years. For investors, Prosper offers an opportunity to grow your money at a high interest rate.
You just need to invest in the different loans that the company has. Each loan will have a different interest rate and it’s dependent on how risky it is.
There’s also an annual fee that you’ll need to pay when you invest in the company.
In the next section, I’ll discuss in more detail the fees associated with this investment and how it actually works.
How Does Prosper Work?
Prosper offers an investment opportunity for people who are looking to grow their money. The opportunity is basically lending your money to other people who need a loan.
You get your money back over a certain period with interest. This is basically the gist of what the company offers. But how does this investment opportunity really work?
Prosper offers people the opportunity to borrow money. The main difference is that their rates are usually lower than credit cards and their review process is not usually as stringent as banks.
The company would then put grades on each borrower, based on their profile. There are 7 grades available, with the lowest being AA and the highest being HR.
A borrower that has a grade of AA is a low-risk borrower, which means the chances of them defaulting on the loan is very low. This also means the interest rate on this loan is also low.
Next to AA is A, then B, C, D, and E. The highest grade is HR, which also means High Risk. This means the borrower has a high chance of defaulting on the loan. HR loans usually have high-interest rates.
The interest rates that Prosper usually offers to borrowers range between 5.99% and 36%. As an investor, you basically just need to choose which loans you want to invest and lend money to.
You can use the grade as a guide to determine the risk factors of the investment and invest accordingly. When you open an account, the minimum amount you can start with is just $25.
Of course, it is advised that you put in more than that so you can invest more. The $25 amount is also the minimum initial investment that you can put in a note. After that, you can put in any dollar amount.
When it comes to the fee, the company charges 1% per year. The length of the investment is usually 3 – 5 years but Prosper has a secondary market where you can sell or purchase notes as well.
The company also has a Quick Invest option, which is its automated investing system. This is good for people who don’t really have the time to check and monitor each available note.
You just set the parameters and the company will do the rest.
What Are People Saying About Prosper?
If you look at the early reviews about Prosper, you’ll see that the company was not a good investment option as investors would often get negative returns.
But the company has improved its underwriting process and has become stricter with the requirements on who they approve for a loan.
This has made Prosper a more viable investment option today. Of course, this doesn’t mean there aren’t any problems with this opportunity.
One of the main issues with this kind of opportunity is that it is slightly riskier. When it comes to lending, the risk factor is basically whether the borrower can pay back the money or not.
Despite Prosper’s improved review process of scrutinizing borrowers, they really can’t completely eliminate people defaulting on their loans.
There’s still a chance that borrowers can default, even those who are considered as grade AA. This is also why historical data shows that investors can only expect a return of 5.48% AA loans. This is despite the interest rate being at 5.99%.
Another issue with Prosper is that there are fewer loans to choose from. Don’t expect that the company will have thousands or even hundreds of different loans available for you to choose from.
The company doesn’t have a lot of loans available, especially if you compare it to its main competitor LendingClub. This is likely due to their improved review process so they’re not just approving anyone for a loan.
The last issue with this opportunity is that it is not available in all states. Currently, this investment opportunity is only available in the following districts:
Columbia, Alaska, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.
If you live in a state or district not mentioned here, then you can’t take advantage of this investment opportunity.
What I Like about Prosper
Now that we know what Prosper is and what they are offering, it’s time to discuss what I like about this opportunity.
- The first thing that I like about Prosper is that they are very detailed with the profile of the borrower. This is good as it allows you to really review a borrower to determine if they are more likely to default on their loan or not.
- I also like that there is only a $25 minimum needed for your initial investment. This allows you to invest as little as possible so your risk in each note won’t be that high.
- I also like that Prosper will let you know if the borrower has previously borrowed from the company. Knowing this detail will help you identify better the borrowers that are likely to default from their loans.
What I Dislike about Prosper
Of course, not everything about Prosper is good and dandy, as there are also several things about this opportunity that I don’t really like.
- The first thing that I don’t like about Prosper is that the pool of loans that you can choose from is very limited. The company doesn’t have a lot of options for you to choose from. This will make it harder for you to fully invest your money, especially if you don’t find a lot of loans that you like.
- I also don’t like that Prosper is not available in every state. There are a lot of people who could benefit from what the company offers. Hopefully, the company expands its reach and become available in more states.
Do I Recommend Prosper?
After learning more about Prosper and what they bring to the table, I can say that this is an opportunity that is worth checking out.
I believe the company offers a good investment opportunity that can grow your money at a good rate. However, you also have to be aware that there are risks involved in this kind of investment.
Despite Prosper’s efforts to lessen the number of people defaulting on their loan, they can really only do so much. There are still a number of people who default on their loans, and it doesn’t really matter if they are AA or HR grade.
So you should expect the possibility of experiencing losses when you invest here since you can never really tell 100% if a person will default or not.
The only thing you can really do is make an intelligent guess, based on the information that is given to you, and just hope for the best.
Well, that’s how investing really works. As long as you are aware of the possible risks and make the necessary adjustments to minimize it, then you shouldn’t have many problems with Prosper.