
Review of: Prosper
Reviewed by: Larry Ludwig
Last modified: October 23, 2017
Overall, Prosper is a decent P2P investment service. However, Prosper has its limitations: a smaller selection of investment notes, a required long time frame, and a certain amount of risk. It's also not available in every state, so make sure you check before signing up.
Prosper (Prosper Loans Marketplace, Inc. is their formal moniker) is similar to Lending Club (see my review of Lending Club). Prosper.com was in fact the first to peer-to-peer (P2P) lending company in the United States, although they got an initially bad reputation from investors.
When they first started in 2006, their risk model was awful. Prosper allowed anyone with a pulse to get a loan. Mainly because of this and partly due to the economic crisis, most investors got negative returns.
This left Prosper with a proverbial black eye and cast some doubts on the whole P2P lending space. If you want some insight into how bad the old underwriting model was, I suggest reading a post on Bad Money Advice.
These were the reasons I stayed away from using their service and instead chose to invest with Lending Club.
After I had under my belt more than five years with Lending Club and still getting decent returns, I thought about revisiting Prosper in 2012. At that time I opened an account with Prosper as an investor.
Prosper Features
Minimum Investment | $25 |
---|---|
Fees | 1%/year |
Investment Length | 36 - 60/months |
Accredited Investor | |
Note Types | Unsecured |
Distributions | Daily |
Pre-vetted | |
Pre-funded | |
Secondary Market | |
Self-Directed IRA | |
Promotions | None |
- Account Types — Taxable accounts and IRA accounts. IRA accounts can be new or rolled over from an existing IRA or 401(k). Prosper supports traditional and Roth IRA accounts through a third-party custodian.
- $25 Minimum — To start investing you need $25, though most recommend at least $2,500 to be properly diversified.
- $25 Minimum per Note — Each note must be at least $25 in size but unlike Lending Club can be any dollar amount after the minimum.
- Search Filter — Find only the notes you want to invest in, save the options and use for automated investing.
- Automated Investing — From a saved search automatically invest in Prosper notes.
- Secondary Market — If you need to unwind your investments it is possible via the third-party service from Folio Investing. It is possible to purchase notes as well.
How Has Prosper Changed?
In July 2009, Prosper understood the problems with their service and completely changed their underwriting process. Do keep this in mind when reading older reviews of Prosper. I’m reviewing their service only from that point forward.

The results are looking pretty good. From the data, the returns with Prosper from this period forward are in line with the returns seen with Lending Club. This puts them in a much similar risk category to Lending Club’s notes. All of this makes me much more confident in trying out Prosper this time around.
Prosper Loans
Prosper loans are just like traditional bank loans. It’s no mystery how much rates on credit cards have increased since 2009. Debtors are looking for ways to get a better rate than their local bank. Perhaps because many blame the economic crisis on the banks, they are also looking for non-bank alternatives for loans. Peer-to-peer loans (Prosper included) are usually at much lower rates than credit cards.Prosper loans are unsecured notes like credit cards and not tied to any asset. If you are looking for a loan, but are a subprime borrower, you will no longer qualify with Prosper. You need a FICO score of 640 or higher. Loans can be used for any purpose, but the purpose must be stated in the loan application.
Loan terms of three or five years are an option, and people can borrow from $2,000 to $35,000. When applying for a loan, borrowers get a rating of AA, A to E, or HR (otherwise known as “high risk”). The higher the letter, the higher the risk and therefore a higher interest rate you must pay. Rates currently range from 5.99 percent to 36 percent. If you’ve been a previous Prosper borrower, it’s possible your new loan will be at a lower APR.
You’ll see other Prosper reviews that focus on borrowing money from the peer-to-peer lender. Since this site is about investing, this review of Prosper will only give tips and recommendations on how to… ahem… “prosper.”
I also won’t go into details about diversification and the possible investing risks. These items I discussed in my Lending Club review but also apply to Prosper.
Opening An Account
Prosper supports either traditional taxable accounts or IRA retirement accounts. If you have an existing 401(k) or IRA it is possible to transfer it to Prosper. As with my Lending Club investing, I opened my account by depositing $1,000. The signup process was quick and easy. From there I started doing my investment research.
I picked out some notes I liked and within minutes made my first investment.
I noticed from their website that the pool of available loans is smaller, and the notes are slightly risker with a higher APR. From my research, it appears the rate of loss is slightly higher than Lending Club.
This doesn’t mean Prosper is a bad investment. It means you must be more selective in the loans you choose. I suspect their credit review process is slightly different and will comment on this in later posts. I also see possible investment strategies in which Prosper could yield better returns.

Prosper Alternatives
Peer To Peer Lending | ![]() | ![]() | ![]() |
---|---|---|---|
Rating | 8/10 | 8.5/10 | 7/10 |
Min. Investment | $25 | $1,000 | $5,000 |
Fees | 1%/year | 1%/year | Averages 2%/year; depends upon deal |
Accredited Investor | No | No | Yes |
Review | — | Read the Review | Read the Review |
Which States Are Open to Prosper Investors?
Investors in the District of 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 may take advantage of Prosper’s opportunities.
Prosper Investment Strategy
I used the website LendStats.com to formulate my quantitative investing strategy. Both peer-to-peer lending sites allow access to historical lending data. It appears Prosper.com releases much more loan history data.
From my findings: Results are similar to my Lending Club data analysis but with some differences. Of course, past performance does not guarantee future returns, but it’s a starting point. My risk model filtering is based upon:
- Loan Purpose — I stick to the categories Debt Consolidation, Home Improvement, Personal, Auto and Other. Some of the categories were recently created or are historically (and via stats) poor-performing investments.
- Employment — I choose only individuals who are employed. Sorry fellow small business owners, but statistically you are riskier. In addition, I’m trying to mitigate some of my own personal risk.
- Income — I currently start filtering out the $0, Not Employed and Not Available. However, from my research, anyone sub $50,000 annually is more at risk to default.
- Loan Term — I prefer to invest only in 36-month loans or shorter. While 60-month notes are available and show a slight increase in returns, I prefer to avoid longer-term loans.
- Inquiries — How many times in the past six months has the borrower requested credit checks? I select 0 to 1 requests. Statistically, anyone who’s requested more than one has a much great risk to default.
- Prosper Rating — I select B notes or lower, mainly because I want a higher return and will accept the slightly higher default risk. You might want to adjust this accordingly.
- Credit History — Individuals with a credit history of more than six years have shown to be a better risk. It’s assumed they know how to better manage their money and also have been able to somewhat get themselves on their feet.
- Public Records — None. I don’t want individuals who have defaulted on previous loans. This is especially true since Prosper loans are unsecured debt. As an investor, I have only their word they will keep paying the loan.
- Debt to Income Ratio — Less than 40 percent has been shown to less likely default. In addition, Prosper rejects members who have ratios higher than 50 percent, so this must be an important metric.
- Previous Prosper Loans — While I don’t exclude new Proper borrowers, Prosper members who’ve shown to make timely payments are statistically a much better credit risk.
Pros and Cons
Pros
- Quick Invest — Their automated Quick Invest is a nice feature, though personally I don't think I'll invest via this method. In my opinion, you should do this method only if you have six figures to invest and don't have the time to manually check every note. It certainly keeps your money fully invested.
- Great Loan Profile — The borrower profile is very detailed. In fact, it has much more information than Lending Club.
- Better Search Filters — The additional search criteria allow you to find loans that meet your exact criteria. This is much better than Lending Club's search, which still has a limited amount of filtering options.
- Previous Prosper Loan History — If the borrower previously used Prosper, their loan history will show up. Anyone with a previous Prosper history in good standing is statistically much less likely to default.
- Smaller Amount for Diversification — According to Prosper, you need only 100 notes (or $2,500) to be properly diversified.
- No Fixed Increments to Invest — Notes require at least $25 to invest but can be any amount past this minimum, unlike Lending Club in which you invest in $25 increments.
Cons
- Slightly Riskier — The notes you can invest in through Prosper carry slightly higher risk and with a higher APR than those you'll find at Lending Club.
- Smaller Pool of Loans — If you're looking for more options when it comes to the available loans, Lending Club has more to chose from than Prosper.
- Not Everyone Can Invest — Unfortunately, Prosper is not available in every state, or you must have specific income and net worth in order to participate.
Summary
Even though Lending Club attracts twice the number of loan applications, Prosper is still a formidable alternative. It appears even with the new underwriting process, Prosper loans are slightly riskier than Lending Club. This is based upon doing the number crunching I did on LendStats.com. This isn’t necessarily a bad thing; it’s something to be aware of when picking loans.
This review is based on a real-world long-term test, and I like to put my money where my mouth is. If I like my results over the next few quarters, I will begin increasing my investment to $10,000. Live long and “Prosper” as an investor.
Disclosure: I have over $7,000 invested with Prosper and over $15,000 with Lending Club.
Comments
I’m in the same boat Dave. I have to reinvest my cash balance but there are almost no loans to invest in. I know in the past there have been spells where the loan selection has been on the light side, but nothing like it has been these past few months.
Like you, I can’t find any press or postings about the lack of loans for investors at Prosper. I can only guess to as to what is going on.
Why are there virtually no loans to invest in on Prosper any more. In the last few months the list of available loans has gone from 75 or so to maybe 5-10 and sometimes zero on any given day. Are they just not writing new loans or are the big investors getting them all before we get a chance to look at them. I pull it up at 12:02 EST right after new loans hit. Can’t even re-invest my earnings anymore as there are no loans to invest in. Anyone else having this problem? Are they going out of business? I can’t find any press about it.
Prosper openly tells borrowers that after onoy 120 days they charge off any loans in default. Since they bare no risk when a borrower stops paying, they have little to gain by aggressively going after a borrower in default. This single aspect of their program makes it too risky for many lenders and I now included myself in that group. One bad loan and you will be in the red with Prosper.
I love prosper, but I didn’t always love it…
I first invested in Prosper back in 2007 with high hopes and a personal commitment to helping out good people who needed loans. When perhaps 15% of my borrowers defaulted in 2008, I pulled out all my money in a huff. I re-read the old listings with disgust, penning angry messages to the people who had stiffed me. There was something especially infuriating about being stiffed by real people rather than impersonal stocks and bonds. Then, in August 2015, I began thinking about the performance of my friends’ brokerage accounts in 2008. It finally dawned on me that my .02% return for that year was a heck of a lot better than the returns of anyone else I knew!
I had learned a few things in 2008, so I began investing again, using my knowledge to build a better portfolio than before. I mostly focus on “high risk” loans now, with a few other limits not too different from those mentioned in the article above. After almost two years, my “seasoned” return is 14.24%. Perhaps 200 of my notes are actually “seasoned”. My notes initial returns are generally between 20 & 23%, so I get a good number of deadbeats. But who cares? I’m making great returns, and I never bother to look at the loans. Instead I use auto-invest to set it and forget it. It’s a beautiful thing!
The website stinks. There is no excuse for such a lame interface. But I’ve mastered it, and I get solid returns, so I’m going to keep coming back. At this point, I have over $30,000 invested in Prosper notes. I have recently divested myself of a rental property and feel that my Prosper loans are nearly as profitable, with zero leaks and no noise complaints. Where I used to spend 10 hours a month fixing broken stuff, I now spend virtually no time at all.
I also have an outstanding $12,000 Prosper loan at 6.6%. The possibility of this kind of loan arbitrage on Prosper is an added benefit. I love that I am effectively netting 7% (minus taxes and fees) on borrowed money. How cool is that?
Anyhow, Prosper isn’t for everyone and, to get the best returns, it must be done with thoughtful, practiced, automated investing or you’ll waste a ton of time. Master the auto invest feature and plan to invest in 100 loans minimum. Don’t take anything personally, just try to imagine which type of people are likely to pay their bills. Don’t bother with “A” rated loans. In 2008, my “A” loans defaulted just as often as my “C”s & “D”s, but with way less profitability. Spread your initial investment over 3-6 months and then let your investment “season” for a year. After a year, notice what worked and what did not work. See if you can identify trends. If you’re anything like me, you’ll start to build a higher “risk” portfolio focusing on certain types of borrowers. With my own formula, I’ve found that “high risk” has been more than offset by a 200+ note portfolio and higher interest rates. The term “risk” only applies to the individual loan, not so much to a large basket of loans. I’ve stopped caring if Jim in Montana stiffs me for $17. So long as I’m making money overall, it just isn’t worth my time to care.
Prosper’s website is abysmal….I’ve been an investor for 3+ years and when they changed to this beta version things have been unstable ever since. It’s been a “beta” site for well over a year and you never know if what you click on is going to take you to what you expect. I’m letting my investments run out and moving off Prosper for good.
Prosper terminated its relationship with Folio Investing on October 31, 2016, so a secondary market is presently not available for Prosper notes. Notes must now be held to maturity unless/until Prosper finds and offers another secondary market.
Perfect, thanks Larry. I opened an account with Prosper at the end of last year and still haven’t funded it or started investing. However, at this very moment I’m on my way! Just transferred $5k and am going to give it a go taking your advice/experience into consideration.
In my experience, Prosper has consistently outperformed Lending Club. I put $25,000 into managed accounts on both Prosper and Lending Club about 2 1/2 years ago. The only difference is I have Prosper set to invest $50 per loan, where Lending Club invests $25 per loan. With $25,000 in each, I’m very well diversified. However, all loans are auto invested. I don’t spend any time on it at all. With a completely hands off approach, here are my results:
Lending Club
Initial Investment – $25,000.00
Current Balance – $29,382.13
Return – 7.34%
Propsper
Initial Investment – $25,000.00
Current Balance – $32,137.39
Return – 10.28%
I have invested with Prosper since 2007 AND my return pre 2009 averaged a 16% annualized.
Right now I average 11.6%
I did not invest in 2008, 2009 and got back at it in 2010
I strongly suggest hand picking your loans pretty much the way Larry L. suggests doing in his great article.
The auto invest feature is neat, but you end up buying a lot of junk.
I started investing in Prosper right from the very beginning, sometime during their first 3 months of existence. I made money early, then when the economy tanked I had bad luck with prosper. I typically invested $50 per loan, sometimes $100, but there were 3 loans that I invested $300, $300, and $250 in and all 3 of those defaulted. I had about $5500 invested at that time, and I slowly started to pull it out.
Fast forward to 2011, I had about $1500 still invested. Things had mostly been good with the loans I still had with a very small default rate. I start investing again. I only invested $25 or $50 and went no higher this time. I mainly stuck to A and AA loans with an occasional B loan. I decided to take the safe 6%-8% over the riskier 10%-20% returns.
I built my amount invested back up to $3000 and have made solid returns since. I made back the $850 I lost in those 3 big loans and then some.
I would post my exact numbers, but yesterday when I went to check prosper it was down, and now it’s still down and it has me concerned. That’s what brought me to the article….I was searching for any info on why the site was down.
Prosper site is working fine now. Here are my stats.
From 2006 to now I’ve invested $16,000 and earned 2.09%.
2008 was the only year I lost money, (5.00%) and I had the most invested that year so it took awhile to get back to positive. In total, I’m $438 in the black.
Currently I’ve earned 7.14% so far this year.
I’m investing with both Lending Club and Prosper and the results so far (6 months) couldn’t be clearer.
On Prosper:
– About 200 notes (mostly A and AA, maybe 20% B) , 2 already charged off, fully 4%+ on their way there (more than 30 days late). This is just 6 months out. I think I could easily see 15% default rates by the 2 year mark. No way to make money with that kind of default rate.
On Lending Club:
– About 110 Notes (Mostly A & B, but I’ve got C and D notes as well) – One note late and that one is now on a payment plan so it is being rescued.
It’s pretty clear to me that the Prosper process of evaluating loan applications has deep problems and is a magnet for scammers who can exploit it. Lending Club on the other hand seems to be doing something very right.
In the interests of accuracy……………….. Anecdotal evidence to the contrary non withstanding, Prosper has actually outperformed Lending Club in each & every year since 2009. investor Junkie can provide us the annual breakdowns or one can easily look it up on Lendstats.com
No offense Wayne, but small sample sizes of 200 & 110 prove nothing. Without a minimum sample size of 400-500 in LC & another 400-500 in Prosper, all comparisons/conclusions are HIGHLY suspect. This is something that can be confirmed by any 1st year statistics student.
In case you’re thinking that I somehow favor Prosper, I invite you to do a search of my previous posts here which will provide ample evidence to decisively refute that notion!
I tried them out a few years ago. They seem pretty solid and I didn’t have any issues to speak of. I would echo Peter’s recommendation as an alternative to Lending Club.
Good review Larry. I agree that Prosper provides an excellent alternative to Lending Club, one that carries a higher risk premium (on average) but with higher potential returns to justify that risk. In hindsight Prosper’s initial underwriting model looked pretty stupid but having spoken at length with both founders I understand where they were coming from. They were trying to do something truly innovative – use social connections and peer pressure to minimize the risk of default. In Prosper 1.0 the social side of p2p lending is what was emphasized. And who knows, if we haven’t had the financial crisis, investor returns could have been very different and the social aspect might have remained.
Do not use the Premier quick invest with prosper. I asked that no more than 50. be put in a loan and it is all I can do to get them to stop putting way more than that. the latest loan they put me in was for 300 to a person with 31 late payment and a default already on record. And calling them will only get you a run around.
Thanks for this, I didn’t realize how much company I had in losing money with Prosper. I did, however, happen to choose about the worst time to invest–$10,000 during the spring of 2008. In the end, about 1/3rd of my loans defaulted and I lost about $600. I attributed this result mainly to the mortgage meltdown and resulting carnage, but who knows. I admit I’m a bit gun shy about trying either Prosper again or LendingClub.