Prosper – the Ebay of Person to Person Lending

by Ryan Guina

I recently completed my first 3 loans on Prosper. The process itself was easy, but actually winning my first bid took me several attempts. I almost became frustrated until I better understood how the process works. Now that I realize how simple the process is, I plan on lending more money.

How to Bid on a Prosper Loan

Bidding on a Prosper loan is very easy to do. Just follow these two steps:

1. Select a loan: There are two options for selecting your loans.

1. Manual selection. Lenders manually search through the listings and hand select which loans they wish to fund. Loans are listed with the borrower’s data – the amount requested, Credit rating, debt-to-income ratio (DTI), homeownership status, employment, occupation, income, and information about their credit including revolving credit balance, number of credit lines available, the length of their credit history, past delinquencies and more. Lenders make their decision to lend based on all the above inputs.

2. Portfolio plans. There are four portfolio plans to choose from: Conservative, Balanced, Moderate, Aggressive. The risk for these plans range from very low to very high, and the expected returns vary as well. (remember, these loans are not guaranteed). These portfolio plans are based upon a blend of different loans at varying rates to give a diversified risk level to the lender. To invest in portfolio plans, simply select your plan and fund it.

2. Bid on a loan:

If you chose to use the Portfolio Plan, Prosper will automatically select a loan for you from within the Portfolio Plan you selected. You don’t get to choose the person you lend to, and your loan may go to anyone within the range of credit risks for that particular plan. This method is less flexible, but it is the easiest. The process only takes a few minutes to find a match, and you will get an e-mail notification of which loan you are bidding on. If you have a winning bid, you see the bid listed as a loan on your account overview page.

When you choose to manually select a loan you researched, then you bid by clicking on the “Bid Now” button. You can’t miss it. You select the amount you wish to bid (minimum of $50) and the lowest rate you are willing to accept to fund the loan. Then you enter, confirm, and wait until you find out if you have the winning bid or not.

I lost out on funding the first few loans I attempted to fund because I did not understand lenders had to enter the lowest rate they are willing to accept. The process is set up in an auction format, much like Ebay. The only difference is that there are multiple bidders for the same piece of pie, and you are bidding down instead of up. If a loan is 100% funded and still has time remaining before the auction ends, there is a good possibility the loan rate will be bid lower. This is what happened to me. This is a great advantage for the borrower because people are essentially giving them a discount by bidding lower.

There is one other feature of note: when bidding on a loan, be aware ofย Prosper’s Automatic Funding feature, which is like the “buy it now” feature in Ebay. Once the loan is 100% funded, the auction automatically ends, and no one else can bid the rates lower. These loans are usually requested by borrowers who need the funds in a hurry.

I missed out on two loans I really wanted to fund because I didn’t fully understand the bidding process – but now that I understand how it works – it’s game on!

My experience with lending on Prosper

I currently have 3 loans with Prosper at $50 each. The average interest rate of these three loans is 13.7%, which is very good considering most high interest bank accounts are sitting in the mid 3% range after the recent cuts by the fed. I understand there are risks to lending this money to people I do not know. But, each loan is in a $50 increment and is spread among 3 people. $150 at 13% will not make me rich, but it is a better return than 3% in a bank account. On the flip side, if I lose money, the most I can lose at any one time is $50.

I plan on adding additional funds to my Prosper account as time and money allow. In fact, I currently have $125 in my Prosper account waiting to fund some more loans. My plan is to reinvest my Prosper earnings into new loans. The process will take some time, but I eventually hope to have a nice source of alternative income.

Is prosper the only option? There is a similar Peer to Peer Lending company for both borrowers and investors, called Lending Club. Here is my Lending Club review.

Published or updated March 7, 2017.
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{ 12 comments… read them below or add one }

1 Ryan

deepali, I think my savings account is still over 4% right now as well, but I don’t know how long it will remain at those levels. ING and several other major banks have already lowered their rates to the mid 3% range.

I’m not planning on putting my savings in Prosper, I don’t think that is wise. But I will invest extra money in there when it becomes available. I think it is a good way to diversify and has the potential to bring in good returns.


2 deepali

I currently have one loan on Prosper. I too will be doing the reinvestment thing. I figure over a longer period of time, it’ll be a lucrative option. Plus, I admit to liking the idea of funding someone’s new yoga studio. :)Oh, and my savings account is still getting over 4%. ๐Ÿ™‚


3 Mike

@Ryan: You’re right – Prosper is a very poor place to park your savings. Because the loans are for 3 years, you’re SOL if you need the cash fast. There’s also the risk that the loans go bad and you loose the money you put into Prosper – a no no for emergency savings.


4 Ryan

Mike – that’s true. That’s why I only park money I can afford to place there for a three year time period. There is always the risk of a loan defaulting, but that is the risk you take – the same as investing in the stock market.


5 Mrs. Micah

I hadn’t realized the bidding process was so rough…


6 deepali

I was kind of looking at it as a place to stick a few extra bucks for a decent return with some risk. Kind of like the stock market, only a little more… interesting. ๐Ÿ™‚


7 Kirk

I need to get more familiar with Prosper. My instincts tell me this is probably riskier than the stock market as the folks you are helping are very high credit risks.

People who can’t afford their credit cards or mortgages…or small businesses where the failure rate is 80% over a five year period.

I realize it is nice to invest where there is a good story attached to it, but that is a dangerous practice. When investing, it is best to have no emotional attachment.

I hope you can straighten me out with regard to Propser.


8 Ryan

Mrs. Micah, I don’t think the market is that rough – it is just competitive, like Ebay. People do their research and place their low bid, and when you undercut them, it will automatically take their bid lower if they approved it, just like bidding a max bid on Ebay raises automatically raises the bid to the highest level. You just need to pay attention if you want to win! ๐Ÿ™‚

deepali, I agree, it can be a fun way to earn some extra money, but I wouldn’t use this as your main form of investment, and I wouldn’t invest any money that you absolutely need any time soon!

Kirk, as you know, there are inherent risks to any investment. Some of these borrowers have very high credit ratings, but prefer to take loans from people rather than institutions. The benefit for them is that the lenders will bid the loan rate lower because there is less of a risk involved. On the flip side, there are other loans that are just as good as gambling. If you select carefully, you can make some well placed investments with a good chance of not having any defaults. Like everything else though, there is risk involved. ๐Ÿ™‚


9 Money Blue Book

Frankly, I’m just amazed at how popular Prosper and these sites have gotten. Is the rate of return that stable and assured?


10 deepali

I’m too risk-averse to put more than $100 or so. ๐Ÿ™‚
Also, my current Prosper loan was to someone with a high rating and maybe 20% DTI (or less), so it wasn’t the riskiest of loans. I’m new to this, so I’m not keen on taking any chances, even with $100.


11 Ron@TheWisdomJournal

I’ll be interested to see how this pans out. How long has Prosper been around?


12 Ryan

Money Blue Book, Prosper and Lending Club have become very popular because they are changing the way banking and lending are being done in the US. The short answer to your question is no. The rate of return is not 100% guaranteed. But I will send a more detailed answer to your e-mail account, and I will post another installment about how lending works next week. I think it will clear a few things up.

Ron, Prosper has been around for 2 years now. Stay tuned for my next write-up next week. There will be some good info about the process.


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