Have you tried to apply for a personal loan lately? The process is long and involves a lot of paperwork with no guarantee of approval. Over 38% of personal loan requests are rejected. Think about that – almost 4 out of every 10 people who ask for a personal loan gets rejected. The average loan amount is just $6,400. To cut out the runaround, many people turn to P2P online lending sites like Prosper. Still, Prosper does not have the best reputation. Is a Prosper personal loan a scam?
When Prosper first launched in the mid-2000s, it wasn’t very discerning about who it approved. Prosper offers personal loans and investment opportunities alike and many registered users suffered.
However, it is now 2020. Approval terms for a Prosper personal loan are more exacting.
Is Prosper loans a scam?
To answer that question, let look at the Prosper business model.
Prosper Personal Loans
Prosper Loans Marketplace, Inc, is an online peer-to-peer loan facilitation website and online platform. It was found in 2005 in San Francisco, California.
Prosper claims that it originated over $16 billion in P2P loans to 980 people since 2005.
Prosper matches loan seekers with lenders and investors, all of whom are registered on the website.
Peer-to-peer loans are enabled by third party facilitators, like Prosper. Also known as P2P loans, people use them to negate the need to secure loans from traditional banking sources.
P2P loans became very popular after the 2008 financial crisis. After that, most people couldn’t get approved for loans.
Even if they apply, the application process, waiting time, and documentation required for the loan made the process self-defeating.
With a Prosper personal loan, all you have to do is apply. After approval, you can then peruse lenders and investors matched to your financial needs.
Even though Lending Club is the better and favorably known P2P service, Prosper was the first to launch in the United States.
This fact is also why Prosper has a notorious service reputation (more on that later).
Prosper Personal Loan Application Process
To apply for a Prosper personal loan, just log onto the site, register, and create a profile. You will then be prompted to fill out a questionnaire in reference to your credit history.
Your questionnaire will then be analyzed by a Prosper algorithm and risk-rating data program and TransUnion.
You will be asked why you need the loan. If your justification disqualifies you, Prosper may automatically refer you to another service.
To qualify, you need to meet some standards for a Prosper personal loan request:
You must have a credit score of at least 640.
Your credit history should not show any bankruptcies within the past year.
There is no income minimum, but the average Prosper applicant makes $90,000. The less money you make, the less likely you will qualify for large loans.
Your debt-to-income ratio must be under 50%.
You should have 3 or less credit accounts currently.
You should not have more than five credit card inquiries within the past six months.
Applicants can request loans ranging from $2,000 to $40,000. You will have 3- to 5-years to repay the loan.
Prosper personal loan interest rates range from 5.99% to as much as 36%. The interest rate you pay will depend on your creditworthiness and application.
Prosper charges a 2.4% to 5% origination fee, a 5% late payment fee, and a $15 insufficient funds fee.
These terms may seem reasonable if you have collateral to pay back a Prosper personal loan.
If you’re desperate, it may be convenient to call Prosper a scam after voluntarily accepting its terms.
After launching in 2006, Prosper approved almost every application it received. This result in a lot of defaults and a well-deserved bad reputation it is still trying to salvage.
Here are some complaints former and rejected Prosper applicants have alleged.
Prosper Personal Loan Gift Card Scammers
Former Prosper personal loan recipients are complaining that scam artists are contacting them with bogus offers.
Scam artists who have successfully phished former Prosper applicants are offering approval for a prepayment kickback.
The scam artists are asking for money, prepaid credit cards, or gift cards in exchange for application approval.
Prosper and no other online P2P loan service will ask for an upfront payment before assessing a loan.
If you are contacted by such a scam artist, hang up or block them online.
While such incidents are unfortunate, it isn’t fair to officially associate such with Prosper’s operating standards.
Exorbitant Fees
Former Prosper applicants have complained about Prosper’s originations fees and service. I recommend that you read them.
Many people complain in very vague ways about how the Prosper personal loan process broke down or failed them.
The origination or processing application fee that Prosper charges you depend on your financial circumstances.
Prosper then deducts this fee before releasing the money to you. You will still be charged for the whole amount.
Let imagine you were charged a 5% fee for a $12,000 loan approved by Prosper. Before Prosper releases the funds to you, they will deduct $600, or 5% of $12,000.
But you will still have to pay back $12,000 instead of the $11,400 you received.
Credit card companies with application fees do the same thing.
If this is a scam, every financial institution is guilty of it.
Loan Rejection
People are complaining on online forums that Prosper is a scam because they were rejected after an initial preapproval.
While it is frustrating to be rejected for a loan, that is not a criterion to describe a, “scam.”
Automated Prosper Calls
Some former Prosper applicants complain that Prosper calls them too much to inquire about late payments.
It would be nice to be left alone after a P2P service loans you thousands of dollars.
We don’t live in that reality.
If you have not repaid your loan you can’t be shocked if you get calls from your lender. Your lender legally can’t harass you, but they can call you.
That can’t be interpreted as a scam.
Is Prosper a Scam?
If you asked if Prosper was a scam in the mid-2000s, you may have been justified in answering in the affirmative.
However, Prosper has come a long way in modernizing and improving their business model.
Is a Prosper personal loan a scam? I don’t think so.
It’s lending terms might backfire on you in the long-term if you can’t pay it back. That is not a scam.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.