Late Payments and Defaults

What should I do if a borrower is late on a monthly payment?

Don't panic just yet. Sometimes people are just late. Prosper sends frequent emails to overdue borrowers, their Prosper friends who bid, and their group leaders (if they are members of a group), prompting them to pay their monthly payment as soon as possible.

Once the borrower is more than 15 days late, the borrower will be charged a late fee. The late fee is divided up pro-rata among the borrower's lenders.

Once the loan is one month past due, it is turned over to a collection agency to pursue collection from the borrower. If the collection agency cannot collect payment from the borrower after a reasonable period of time (within 3 months), the loan will be considered uncollectable, marked as "Defaulted", and sold to a debt buyer. The borrower will not be able to borrow ever again from Prosper, and since we report delinquencies to credit reporting agencies, this default will adversely affect their credit report. Learn more about default sales and debt buyers.

Can I contact the delinquent borrower directly myself?

You should not contact delinquent borrowers directly. Prosper has a detailed delinquency schedule for borrowers, and any additional contact you have with a borrower may expose you to civil or criminal penalties for unlicensed debt collection. The language and tone you use when collecting a debt matter are important in the eyes of the law so what you might consider reasonable may in fact be illegal. If you were to accidently break the law you'd be putting yourself, your fellow lenders, and Prosper at risk of litigation.

Can I collect on late payments myself?

Under no circumstances should you attempt collection on a late payment yourself. Compliance with all state and federal laws while attempting to collect a delinquent loan is not trivial. When necessary, Prosper ensures all collection activity is performed by licensed and professional collection agencies. Lenders who undertake debt collection (even if they are a debt collector by trade) are in violation of Prosper legal agreements and will undermine the collection agency's ability to do their job. Moreover, in doing so you run the real risk of creating a legal liability for yourself. Learn about collection agencies

How can I prevent defaults?

You can't pick your relatives, and you can't prevent defaults. You can, however, know that you are assuming some risk when you make a loan, and take steps to reduce that risk. Here are a few techniques for reducing your risk when lending:

Lend to lower-risk borrowers: If you're worried about defaults, lend to borrowers who have higher credit grades (AA, A, B) and less than 20% debt-to-income ratios.
Make small loans to many borrowers: One of the best ways to lower your risk (no matter who you're lending to), is to lend smaller amounts to many borrowers. The more loans you make, the less risk you'll take compared to lending to just one or a few. And the best part is that it doesn't cost a cent more to lend to a lot of borrowers than to lend to just one. In fact, there's even a tool you can use, called a portfolio plan, that will place bids for you. Learn more about portfolio plans.
Understand the risk profile of your borrowers: Use the marketplace performance page to see performance, delinquency, and default data on Prosper loans. Using this data, you can gain a better understanding of the dynamics of the Prosper marketplace, and use that knowledge to minimize the risk taken on borrowers.

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