Prosper help - Investor FAQs

With any debt, there’s always the risk that a borrower can default on their loan, which could result in a loss for the investor(s) who invested in the loan. Loans are unsecured obligations, meaning they are not secured by any collateral of the borrower. To assess the risk of each loan before committing funds, investors should review the loan request details and the Prospectus.

Some states require that individual investors meet certain Financial Suitability Requirements. Learn more about your state’s requirements.  If your financial situation changes, you can revisit your response to the Financial Suitability Requirements at any time by going to 'My Account > Settings' and clicking on 'Edit your response' under 'Lending Financial Suitability Requirements.'

Every loan request is assigned a Prosper Rating through our proprietary rating system, which allows us to maintain consistency in our evaluation. The Prosper Rating is expressed as a letter grade that indicates the expected level of risk associated with a loan listing.  Each letter grade corresponds to an estimated average annualized loss rate range.

We take identity theft and application fraud seriously.

Before a loan through Prosper originates, we verify each applicant’s identity and income using data from consumer reporting agencies and other anti-fraud verification databases.

In the event a loan defaults due to verifiable identity theft, we will (at our discretion) either repurchase the Note(s) or indemnify the Note holder(s) against losses on the affected Note(s).

To view a breakdown of your Notes and their payment histories, sign into your Prosper Account and access your Notes by selecting “See Notes Portfolio” on the “Your Investments” tab. Select the Note ID to see the Note details.

To help you better understand the Note details, the following is a list of terms and how they apply to the Note details:

• Active Loans: Active Loans means loans that are current in payments or delinquent less than 120 days. Loans that have paid off, charged-off or are in default are not considered active.
• Amount Delinquent: The sum of past due amounts owed by the borrower.
• Bankcard Utilization: The sum of the balances owed on open bankcards divided by the sum of the cards’ credit limits.
• Co-Borrower Applications: Applications that are approved based on the credit information for both or either Co-Borrowers. To learn more about Co-Borrower Applications, please review our Prospectus and Help Center.
• Combined Debt/Income Ratio: The sum of each borrower's monthly debt payments (accounting for any duplication), and the Prosper monthly payment (assuming this loan request originates), divided by the sum of each borrower's stated monthly income.
• Combined Stated Monthly Income: The sum of each borrower's stated monthly income.
• Current Delinquencies: The number of accounts of the borrower that are currently late. This includes accounts with charged-off balances.
• Current/Open Credit Lines: The number of open or closed accounts in the borrower’s name that the borrower is paying on time, and the total number of open accounts.
• Debt/Income Ratio: The sum of the borrower’s monthly debt payments, and the Prosper monthly payment (assuming this loan request originates), divided by the borrower’s stated monthly income.
• Delinquencies in Last ~7y: The number of times the borrower has been more than 90 days late with a payment in the last 83 months.
• Effective Yield: Effective Yield is equal to the borrower interest rate: (i) minus the servicing fee rate, (ii) minus estimated uncollected interest on charge-offs, (iii) plus estimated collected late fees, (iv) plus estimated post charge-off principal recovery.
• Estimated Loss: Estimated loss is the estimated principal loss on charge-offs.
• Estimated Return: Estimated Return is a measure of potential returns on invested principal, and is equal to Effective Yield minus Estimated Loss.
• First Credit Line: The date when the oldest account on the borrower’s credit record was opened.
• Has Mortgage: An indication whether the borrower has an outstanding mortgage on their credit report.
• Historical Return: Historical Return is an annualized measure of return on principal received from loans originated through Prosper. It is based on actual payments (other than principal) received by the investor net of fees and losses.
• Initial Status: The initial status represents if a listing started in a whole or fractional status. When loans are initially listed, some are available for purchase in $25 increments and some are available to purchase as whole loans.
• Inquiries Last 6 Months: The number of times a bank or other business has requested the borrower’s credit profile from a consumer credit rating agency, excluding certain duplicate inquiries, as defined by the credit bureau.
• Investor Servicing Fee: Prosper’s annual loan servicing fee, subtracted from loan payments to the investor. Calculated as: the annual servicing fee divided by 365 multiplied by # days since last payment, then multiplied by the outstanding principal.
• Loan Modification Programs: In certain cases, Prosper will enter into payment plans with eligible borrowers experiencing short-term hardship. These Loan Modification Programs are focused on maximizing investor return by helping borrowers to bring their loans back to current status and repay their loans to fullest extent possible. Loan modifications may include reductions in monthly payment amounts and extensions of loan maturity dates. If Prosper modifies the material terms of a borrower loan, the updated terms will be available on the Note performance page in your investor account.
• Monthly Payment: The monthly payment made by the borrower.
• Prosper Rating: A proprietary rating developed by Prosper allowing you to analyze a listing’s level of risk.
• Prosper Score: A custom risk score built using historic Prosper data. The score ranges from 1-11, with 11 being the best, or lowest risk score.
• Public Records Last 24m / 10y: The number of negative public records reported by the credit bureau for the last 24 months or up to 10 years, as applicable. Public records may include bankruptcies and liens.
• Revolving Credit Balance: The total outstanding balance that the borrower owes on open credit cards or other revolving credit accounts.
• Stated Income: Borrower's stated annual income range.
• Total Credit Lines: The total number of credit lines appearing on the borrower’s credit report.
• TU FICO Range: The range of the borrower’s credit score as provided by a consumer credit rating agency in a recent credit inquiry.
• Verification Stage: The borrower needs to submit documentation for Prosper to verify. The further along in verification, the higher the Verification Stage and the more likely the loan will originate. The borrower can advance to a higher Verification Stage by promptly submitting requested documents.

Borrowers have the option to prepay all or part of the outstanding principal balance of a borrower loan in advance of the due date at any time without penalty. Partial prepayments will not change the term of the borrower loan or the monthly payment amount, but interest will cease to accrue on the prepaid portion, and an investor will not receive all of the interest payments that the investor originally expected to receive on the Note corresponding to the borrower loan.

If the borrower does not satisfy their monthly payment within 15 days of the due date, the borrower will be charged a late fee. Late fees are 5% of the unpaid payment amount or $15, whichever is greater (unless state restrictions apply).

We divide and distribute the late fees proportionately among the investors in the corresponding Notes, subject to deductions for collection fees and servicing fees.

Collections
If a loan is more than one day past due, we may collect on it directly or we may refer it to a third-party servicer or collection agency. Once a loan reaches 121 days past due, it is charged off. Historically, recovery rates on loans once they have entered into collections range from 7-12%.

Investors cannot attempt their own collections efforts or attempt to contact borrowers directly.

A loan is considered “charged-off” after a borrower misses 5 consecutive monthly payments. At that point, the loan is considered unlikely to be repaid.

When a loan is charged-off:

• The entire loan balance is due immediately—including all unpaid fees, interest, and principal. In other words, the full remaining amount of the loan is collectable as opposed to just the unpaid monthly payments.
• No additional interest or fees will accrue on the charge-off balance.

Charge-offs remain in collections until some action is taken to end the loan.

Possible loan-ending activities include payment in full, discharged bankruptcy, and sale to a debt buyer. We can also end a loan with 'no value', meaning all efforts to collect on the loan, including debt sale, have been exhausted and the loan is deemed to have no value.

Payments made by the borrower following a charge-off are considered “recoveries.” These funds pay down the loan’s balance, but the loan remains in a charged-off status. Depending on whether the loan is in Prosper collections or with a third-party charge-off collection agency, recoveries may be subject to collection fees. Once charged-off, the account will be reported as “Charged Off” until paid in full.

Prosper provides a year-end investor statement to all active investors and may provide a Consolidated Form 1099 to investors and tax authorities, depending on the investor’s activity during the prior calendar year.

Prosper also provides a monthly statement, available for download from your Prosper Account.

If you are subject to 1099 tax reporting, your tax forms will be available on the 'My Account > History > Statements' page by January 31 of the year following the calendar year in question. Your tax forms are also sent via email to the email address associated with your Prosper account.

If you would like to receive a paper copy of your tax forms, please contact us.

1099-MISC

You will be provided a Form 1099-MISC in each tax year that you receive $600 or more of borrower late fees, referral awards, bonuses, incentives, and the like. Income shown on Form 1099-MISC will be reported to the Internal Revenue Service and State tax authorities in the event applicable thresholds as established by them are met.

1099-OID

You will be provided a Form 1099-OID in each tax year that you have $10 or more in “net interest” income on Notes originated in 2009 or later. Income shown on Form 1099-OID will be reported to the Internal Revenue Service and State tax authorities in the event applicable thresholds established by them are met. Form 1099-OID details income reported on Notes that are subject to OID tax reporting.

1099-B

If you (a) held any Notes where the corresponding loans were charged-off; (b) received any recovery proceeds from Notes where the corresponding loans were charged-off or (c) received gross proceeds from Notes corresponding to charged-off loans that were sold to third parties, you will be provided a Form 1099-B with a detailed breakdown of this information for each Note held.

If you are subject to 1099 tax reporting, your tax forms will be available on the 'My Account > History > Statements' page by January 31 of the year following the calendar year in question.

Retail investors must be United States permanent residents or citizens who are 18 years of age or older, with a valid Social Security number (or other Taxpayer Identification Number, if investing through a trust, estate, or corporate entity) and checking or savings account. Retail investors must reside in a state that is open to Prosper investors and may also be required to meet suitability requirements established by their state of residence. See more state requirements here.

Prosper is currently available only to investors who reside in the following states:

Alaska
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia 
Hawaii
Idaho
Illinois
Indiana
Louisiana
Maine
Michigan
Minnesota
Mississippi
Missouri
Montana
Nevada
New Hampshire
New York
Oregon
Rhode Island
South Carolina
South Dakota
Utah
Vermont
Virginia
Washington
Wisconsin
Wyoming

While we can’t make any specific recommendations, we have found that investors generate a more stable return when they diversify their investment through many different Notes, with each Note corresponding to the borrower loan of a different borrower.

Prosper’s notes are offered by Prospectus which is an official document that describes all the key information for the investments we offer. You can find our Prospectus on our website at the bottom of any page at www.prosper.com

For individual general investment accounts, the minimum amount you can invest is $25.

For IRAs managed by our designated custodians, AltoIRA and Inspira, the minimum investment amount required to qualify for custodian fee reimbursement is $5,000 in year 1 and $10,000 in all subsequent years. Please note that these minimums refer to the amount invested in Prosper Notes -- cash balances will not be counted.

To invest in a loan through Prosper, investors purchase a “Borrower Payment Dependent Note” (referred to as a Note) for each loan they choose to fund. A Note represents an investor’s funding commitment to a loan and requires Prosper to pay investors their share of payments received from borrowers.

As an investor, you are not actually lending your money directly to borrowers but are instead purchasing Notes from Prosper. The proceeds from these Notes facilitate the purchase of borrower loans from WebBank.

No, your investment account is not a bank account. We’re not a bank - we don’t take deposits, nor do we pay interest on the cash balance of your account.

We maintain the funds retail investors use to invest through Prosper in a pooled account at Wells Fargo Bank, N.A., a depository bank, titled in Prosper’s name “for the benefit of” (FBO) our investors.

Funds in this FBO account will always be maintained at an FDIC member financial institution, subject to applicable limits and conditions. FDIC insurance only covers the failure of Wells Fargo, the FDIC-insured depository institution. Investors have no direct relationship with Wells Fargo Bank, N.A. by virtue of participating on our marketplace.

Any invested funds are not insured by the FDIC, are not deposits, are not guaranteed by any agency of the federal government or by Wells Fargo, and may lose value

The cash balance of your Prosper investment account is FDIC insured by Wells Fargo Bank, N.A., a depository bank.

The FBO account that we maintain at Wells Fargo Bank, N.A. for the benefit of investors is FDIC-insured on a “pass through” basis to individual investors, subject to applicable limits and conditions. This means that each individual investor’s balance is protected by FDIC insurance, up to the aggregate amounts established by the FDIC. Other funds the investor has on deposit with Wells Fargo may count against the FDIC insurance limits. Prosper is not an FDIC-insured depository institution. FDIC insurance only covers the failure of Wells Fargo, the FDIC-insured depository institution.

Please be aware that any funds lost due to borrower default or poor Note performance are not FDIC insured, and any invested funds are not deposits, are not guaranteed by any agency of the federal government or by Wells Fargo, and may lose value.

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.

Service fees

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.

1. 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
   .
2. 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

You can find our financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC and available at https://www.sec.gov/.

These statements are also available on our website at: https://www.prosper.com/prospectus.

Whether you are an individual investor, institutional investor, or a third party agent putting your knowledge to work for others, Prosper provides APIs to quickly locate, search for, bid on, and filter through loan investment options. Build a portfolio that suits your investment needs. For more information, please visit the Prosper for Developers site.

Yes, Prosper is happy to accommodate institutional investors. Please follow the registration process to set up your Institutional Investor account.

We’re required to hold onto all account information for as long as needed to provide you services, comply with our legal obligations, resolve disputes, conduct analysis, audits, or to enforce our agreements or as otherwise permitted and/or required by law.

To read more about how we handle your information, see our Privacy Policy.

We have prepared a Privacy Policy to explain how we collect, use, protect, and disclose information and data when you use Prosper’s websites, services, and mobile applications. For details, please visit our Privacy Policy page, which is accessible through “Legal” navigational link contained at the bottom of our site pages.

When a borrower makes a payment, we’ll deposit your pro rata portion of their payment into your Prosper account within 1-2 days.

Since different loans have different payment due dates, most investors who hold multiple Notes will see a continuous stream of small payments added to their cash balance throughout the month. You can re-invest those funds  or transfer them to your bank account--whichever you prefer!

There are four ways to invest using our platform:

• You can search for individual loans and manually invest by clicking “Invest Now” on any loan.
  
  
• You can use the Auto Invest tool, which will automatically invest in loans that meet your specified criteria. You can create balanced allocations using Prosper’s risk ratings. Auto Invest also allows you to specify additional criteria for loan term, employment status, debt-to-income ratio, public record status or co-borrower status. Over time, the Auto Invest tool will build your portfolio according to the target allocations you have set.
  
  
• You can manually create a standing Recurring Investment order, which allows you to automatically invest in loan listings that meet your specified loan listing criteria. Please note, this option is only available through our website and is not available through the Prosper Invest mobile app.
  
  
• Developers can invest using our Investor API. For more information, please visit the Prosper for Developers

We verify the identity of a borrower by reviewing supplied names, social security numbers, addresses, and telephone numbers against records of consumer reporting agencies and other anti-fraud and identity verification databases.

In addition, we may ask borrowers to submit a copy of their current driver’s license, passport, or other government-issued photo identification card to confirm their identity.

Finally, we verify each borrower's bank account information.

If we are unable to verify the identity of a borrower, we cancel the borrower’s loan request.

We verify the accuracy of all statements and information provided by borrowers and investors in connection with listings, commitments, and loans.

To verify a borrower’s income, we will request documents such as recent paystubs, tax returns, or bank statements. To verify a borrower's employment, we may contact the borrower’s employer or use other databases.

In some cases, we may delay investor funding of a loan to verify the information provided by a borrower.

Loans will not originate unless we complete verification. If we are unable to verify the information needed, we will cancel the application and/or cancel any or all funding commitments made by investors.

We are unable to assign beneficiaries to investment accounts.

Additional details about Prosper Notes are described on the Prosper Prospectus, an official document detailing all the key information for the investments we offer. You can find the Prosper Prospectus on our website at the bottom of any page at www.prosper.com.

A Verification Stage is a three-stage indicator of the progress on the loan, based on the status of verification of the borrower’s identity, information and documentation. The further along in verification, the higher the Verification Stage rating and the more likely the loan will originate if it receives sufficient investor funding commitments.

Yes, you should remove any security holds before applying.

Yes, investors can apply for loans through Prosper (depending on state eligibility). If approved, you can manage your investments and your loan using the same Prosper Account.

In order to borrow funds, you’ll need to apply for a loan. You can access the loan application from Prosper’s home page.