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If you’re looking to consolidate different loans and credit cards into a single loan, you might have come across Prosper. Here is the information you need to know to determine whether Prosper is a good debt consolidation loan for you. If you’re interested in debt consolidation, you should also see the 5 things you need to know before getting a debt consolidation loan.
Is Prosper a legitimate company?
Prosper was established in 2005 as a peer-to-peer lender. The idea was that individuals with money would come to the site and decide to lend money to people who needed loans. It would be a good investment and the company would be able to avoid the regulatory scrutiny of traditional banks and lenders. That model didn’t stick around. You can still invest in loans through Prosper, but the actual lending is being done by a bank (WebBank). Most of the money for their lending is not coming from individuals like you and me.
The fact that WebBank is on the hook for the lending process means that they are closely regulated. You can have confidence in that when borrowing from Prosper.
How much can you borrow from Prosper for debt consolidation?
You can borrow between $2,000 and $50,000 from Prosper, but the average amount that they lend is around $14,000. Of course, that average probably doesn’t mean much because you have a bunch of people getting smaller loans and a few getting bigger loans.
Unsurprisingly, one of the most important factors determining how much Prosper will lend you is your income and how much of it is claimed by other expenses. The average payment size for Prosper borrowers is 5-6% of their monthly income.
How hard is it to get a loan with Prosper?
Most lenders have their own process for determining who to lend money to, how much to offer, and at what interest rate. What makes Prosper a little different is that they need to communicate the “quality” of the people they are lending to. This was investors can get a feel for whether they want to invest in them.
Prosper uses a combination of things like a credit score from TransUnion, your income, and your other expenses to give you a specific Prosper rating. The prosper rating has seven grades which is meant to explain credit risk. Those grades are: AA, A, B, C, D, E, and HR. Between 55 and 60% of all their loans are going to people in the top three grades.
What credit score is needed for a Prosper loan?
If your credit score is below 620, you might need to consider including a co-borrower to the loan in order to be approved. Both you and the co-borrower would be on the hook to make the payments. I think that at least half of their borrowers have credit scores above 680.
What is required to apply for a Prosper loan?
In order to apply for a Prosper loan, you will need to:
- Be at least 18 years of old
- Be a U.S. resident in a state where Prosper lends
- Have a U.S. bank account
- Have a Social Security number
- Proof of income (such as recent pay stubs, tax return, or bank statement); they may also request proof of employment
- Provide access to review of your credit report through TransUnion
How long does it take to get approved for Prosper?
It will probably take you longer to gather the information you need to apply than it will take Prosper to make a decision. Although, there are instances when they will want to verify information or ask for additional documents.
If your Prosper grade is lower, it might take more time to find investors to fund your loan. If your application was not accepted in 14 days, you will receive a denial. But even most denials should come more quickly than that.
What is the APR on a Prosper debt consolidation loan?
They currently do not state what the APR is on their loans. That suggests to me that the recent rise in interest rates has made this somewhat unpalatable for people. At one point, they reported their interest rates were between 7% and 36%. I doubt very highly that the low end is realistic anymore, given the rise in the federal fund rate. Most recent reports say that their current average interest rate is nearly 19%. Even with inflation, it is unlikely that they offer loans above 36% for a host of historical, legal, and regulatory reasons.
What fees does Prosper charge for a debt consolidation loan?
Prosper has several fees that are attached to their loans, but most of them are avoidable. The one fee that you can’t avoid is the origination fee. It is taken out of the proceeds of the loan when you take the loan. The fee ranges from 1% to 8% of the value of the loan. It’s important to note that the origination fee is represented in the stated APR. In other words, the APR includes interest charged and the origination fee.
If you want to make your monthly payment by personal check, you will have to include a check payment fee which is 5% of the payment or $5, whatever is less.
If a payment fails because you don’t have enough money in your bank account, Prosper will charge you $15.
If you are late with your payment, they will charge you $15 or 5% of the monthly payment amount, whichever is greater. They will only charge you, though, after a 15-day grace period.
Will a Prosper debt consolidation loan affect my credit?
A Prosper debt consolidation loan can affect your credit in several ways:
- Opening a new credit account will probably drop your credit score about 10-15 points for a couple of months
- If you consolidate credit card debt, your credit score could be benefited by a drop in utilization. This impact depends how big the drop in your utilization is. It’s common for the impact to be 30 points or more!
- If consolidating your debts cause you to close accounts, your credit score could go down for a few reasons, like a drop in your average age of credit or a change in credit mix
- Making consistent, on-time payments on your Prosper loan can help your credit score because Prosper reports to all three of the major credit bureaus
- On the other hand, if you are reported late on your payment (30-day late or more), it will negatively impact your credit score
Is it a good idea to consolidate my debts with Prosper?
Consolidating your debts can be a great way to accelerate your efforts to get out of debt, but only if your new loan has a significantly lower interest rate than the debts you currently have. Compare the interest rate on the existing debt with the APR of the Prosper loan. If the existing debts are a few percentage points higher (or more!), debt consolidation could save you a lot of money.
You will also want to figure out the payoff date for your existing debts. In general, you don’t want to consolidate any debts that you think you can pay off within a year. Why? Well, when you consolidate, you create a new loan that will reset the term length. You don’t want to take debts that would have been gone in a few months and consolidate them into a loan with a 3, 4, or even 5-year term.
Debt Consolidation at The Yukon Project
Before you take any loan, make sure you apply to at least three or four other companies. You owe it to yourself to get the lowest rate that you can get. The only way to know for sure that you are getting the best deal is to apply around. You should make sure that the lenders you’re applying for only do a soft inquiry. This will make sure your credit score is not impacted at all by shopping around.
At The Yukon Project, we’ve tried to make that easy to do. If you visit our loan marketplace page, you can apply to up to 40 lenders at the same time, with a single application. And applying won’t affect your credit.