Prosper Investments provide investors direct and low-cost access to high-yield consumer loans from creditworthy borrowers.
Prosper, founded in 2006, is a financial services company offering an online marketplace (known as peer-to-peer lending) to connect borrowers and investors. Prosper is not a bank but the underwriter for these loans which is funded by WebBank. With Prosper, investors have the opportunity to invest in these loans for a return.
All loans made through Prosper must be 100% invested on by investors before it is funded. You are able to invest fractionally towards a loan starting at $25.
How Prosper Investments Works
Investing through Prosper is a simple process. Investment opportunities begin when a borrower applies for a loan and meets Prosper’s underwriting guidelines such as credit history and employment. Once a loan has gone through underwriting it will be listed on the platform for investors.
Prosper assigns grades for these loans which help investors determine potential return. There are seven grades given by Prosper Ratings: AA, A, B, C, D, E, and HR. AA is the lowest risk and HR is high risk. Currently, investor returns begin 3.11% for a 3-year AA loan up to 13.97% for an HR rated loan.
Who Can Invest On Prosper?
In general, most investors must be: ” Individual investors must be United States residents who are 18 years of age or older, with a valid Social Security number and checking or savings account. Individual investors may also be required to meet suitability requirements established by their state of residence.” Read more on Prosper.
What Are The Risks?
With any investment, there are risks that investors take on. Prosper, like any other vehicle of investments, do not guarantee excellent returns on your investments. They are able to provide historical data of returns and defaults to make you more informed about the risks and returns.
What are the base risks to consider? For one, as you’re investing in loans, there is a risk of default and as an investor, you have little recourse if a borrower defaults. The higher risk loans which give a higher return are also the investments with the biggest risk of default.