While there are no fees to open an investment account, Prosper charges investors service fees for each payment received. For loans in collections, an additional collection agency fee will be assessed.
Investors pay an annual loan servicing fee, currently set at 1% per year for each payment received from borrowers toward each Note the investor holds.
The fee accrues daily, the same way that regular interest accrues on the corresponding loan.
The servicing fee amount, netted out of each loan payment, is calculated by multiplying (a) the outstanding principal of the loan prior to applying the current payment, by (b) the annual loan servicing fee divided by 365, and then multiplying this amount by the number of days since the borrower’s last payment. Consider the following example to understand how servicing fees add up:
If the outstanding principal balance on a loan is $10,000, and it’s been 30 days since the last payment, then the loan servicing fee is 1% of the outstanding principal balance divided by 365 days, multiplied by the number of days since the last payment—which, in this case, is 30.
1% of $10,000 = $100
$100 / 365 days = $0.2739 (which rounds up to $0.28)
$0.28 x 30 days = $8.40
The servicing fee for this example would be $8.40. At this point, we also assess any borrower-servicing fees due to Prosper, like a non-sufficient funds (nsf) fee.
- If the borrower makes a payment of $300 and there are no borrower-servicing fees, Prosper applies the $300 toward the balance due on the loan, withdraws the $8.40 investor servicing fee, and distributes the remaining $291.20 between the investors who committed funding
- If a borrower incurred a $15 nsf fee, Prosper withdraws this amount before we apply the remaining $285 toward the balance due on the loan. Prosper then withdraws the $8.40 investor servicing fee and distributes the remaining $276.60 to investors.
In Situation 2, it can appear that investors receive “less” if a borrower incurs a nsf fee, but that’s not the case due to how payments are allocated toward the loan balance. Borrowers are still responsible for all unpaid amounts of the loan.
Collection agency fees
When a loan is at least one day past due, we begin collection efforts through one of our third-party collection partners. Collection efforts result in agency fees, which can amount up to 40% of all recovered amounts, paid by Investors.
If a collections agency manages to collect a $100 payment and their agency fee is 25% of the amount of a payment collected, the collection fee would be $25 and be subtracted from the full payment amount received from the borrower. The remaining $75 would be allocated to the loan.
$100 (payment) x 25% (fee) = $25
$100 - $25 fee = $75, applied to the loan