Prosper Glossary

ACH
This stands for Automated Clearing House. ACH is a payment system of the U.S. Federal Reserve Bank that provides electronic funds transfer between banks. It is the same kind of fund transfer transaction that is used for direct deposit of paychecks.

Amortization
The gradual elimination of a loan, with regular payments, over a set period of time. The loan payments include portions of both principal and interest.

Amortization term
The period of time to pay off a loan, normally measured in months. Every loan currently available on Prosper has an amortization term of 36 months (3 years).

Annual income
A figure that reflects the total amount of income an individual earns in a year's time.

APR
The Annual Percentage Rate (APR), as it pertains to loans on Prosper, is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the borrower to the amount and timing of payments made. In short, it is the cost of your credit as a yearly rate. The APR is different from the borrower rate (or "note rate") because it includes one-time fees in an attempt to calculate a total cost of borrowing money.

APY
The Annual Percentage Yield (APY) is a percentage rate reflecting the total amount of interest paid on a deposit account, based on the interest rate and the frequency of compounding for a 365-day period.

Automatic funding
Automatic funding is an option for borrowers who want their money quickly and would be satisfied by a specified interest rate, rather than a potentially lower interest rate that could result if the listing were subject to continued auction bidding. In the case of automatic funding, as soon as a borrower's listing receives bids totaling the amount of the requested loan, the listing closes and funds are transferred into the borrower's bank account. (subject to pre-funding verification). With automatic funding, the interest rate is usually not driven lower by competitive bidding by lenders (but the borrower may be able to obtain a loan faster).

Balloon payment
A balloon payment is a type of payment schedule when after a series of periodic payments, a large lump sum is scheduled and required at the end. Prosper loans do not involve a balloon payment. Prosper loans are fully-amortized loans.

Bank draft
A bank draft is a written order directing a bank to pay a specific amount to a named person. A check is the most common form of bank draft. Borrowers on Prosper are given the choice of making their loan payments in one of two ways: (1) electronically, on the Automated Clearing House (ACH) banking network by preauthorized withdrawals from the Borrower's designated payment account, or (2) by authorizing Prosper to write a bank draft or check on a monthly basis on their behalf to cover their loan payment each month. Payments by bank draft are more costly for Prosper too administer, so Prosper offers borrowers a 1.0% reduction in the interest rate as an incentive to select the ACH method of making loan payments. Borrowers who choose the bank draft method of making loan payments do not receive the 1.0% discount on their interest rate. When loan payments are made by bank draft, Prosper retains the 1.0% "foregone discount" as compensation for processing the payments.

Bankruptcy
A proceeding in a federal court that may relieve a debtor of the obligation to repay some or all of their debts to creditors. A debtor's assets may be liquidated, and the obligations to the creditors can be altered or completely eliminated. People who file for bankruptcy have it denoted on their credit report for up to ten years. See Prosper's policy on borrower bankruptcy.

Basis point
An amount used for interest rates, equal to 1/100th of a percentage point. 100 basis points equal one percentage point. For example, an interest rate of 6.5% is 50 basis points lower than an interest rate of 7%.

Bid
On Prosper, a bid by a Prosper lender is the lender's commitment to purchase a note in the principal amount of the lender's bid, representing a Loan made by Prosper to the borrower, should the listing receive an amount of bids totaling the amount of the borrower's requested loan. Lenders "bid" the amount they are willing to commit to the purchase of a loan to the borrower, and the minimum interest rate they are willing to receive. Currently, a bid may be between $50 and the full amount of the listing. Once a bid is placed, it is irrevocable, and during the time a bid is a "winning" bid on the listing, the amount of the bid is not permitted to be withdrawn from the lender's funding account. Lender bids become "winning" bids if such bids are in the group of bids that total the amount of the requested loan and are in the lowest interest rate among all bids placed against the listing. All loans originated through Prosper are made by WebBank, and then sold to Prosper, and then to the lender or lenders who were the winning bidder or bidders on the listing that resulted in the loan. Depending on the rate and bid date of other bids on a listing, an individual bid can have three different statuses: winning, partially outbid, or outbid. See a tutorial on how bidding works.

Bonds (as investments)
A bond is a debt issued by the U.S. Treasury, the state, or private corporations, that borrows the funds for a defined period of time at a fixed interest rate, often for a period of a year or more. The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipal bonds are typically in the 3-10-year range. (Source: www.Investopedia.com.)

Borrower rate
The borrower rate is the annual interest rate that the borrower will pay on their loan. The borrower rate as displayed in Prosper listings may decrease as a result of competitive bidding among Prosper lenders. The borrower rate at the end of a listing's auction bidding period is the interest rate the borrower pays on his or her loan.

Breach
A violation or infraction of a promise, legal obligation or contract.

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Collateralized loan
A collateralized loan (also called a secured loan or asset-based loan) is a loan for which the borrower pledges or grants to a lender a lien or security interest in a particular asset (e.g., real property, automobile, inventory, etc.) to secure the borrower's repayment obligations on the loan. If the borrower defaults on the loan, the collateral can be seized and foreclosed upon in satisfaction of amounts owing on the loan. Prosper does not offer secured loans, as all loans on Prosper are unsecured.

Collection agency
A firm that collects on delinquent accounts. Collection agencies charge a percentage of any recovered funds as the service fee for their efforts. This percentage varies by collection agency, but is typically between 15-30% of the funds recovered. Learn more about Prosper's collection agencies.

Commission
A fee paid to an agent or employee for transacting a piece of business or performing a service. A commission is commonly a percentage of the money received from a total paid to the agent responsible for the business.

Community payment
If a borrower's loan is more than 1 month late, any Prosper member with a lender role and money in his or her Prosper account can make a payment toward a borrower's loan, known as a community payment. A community payment may be in an amount as little as $25 and as much as the full payment due on the loan. No one is required to make a community payment, and borrowers for whom community payments are made have no obligation to reimburse the payer. By making a community payment, the payer is not acquiring any ownership interest in the loan in any way. Learn more about community payments.

Contract
A formal agreement between parties, either written or oral. Review Prosper legal agreements.

Credit
A contractual arrangement in which a debtor receives something of value now and promises to repay the creditor at a later date.

Credit bureau
An agency that collects, updates, stores and sells credit history information about individuals. Credit bureaus sell credit reports to potential lenders interested in knowing an individual's credit history, and may also provide a credit score to reflect their creditworthiness.

Credit grade
A Prosper credit grade is a letter grade that Prosper assigns borrowers based on their Experian Scorex PLUSSM credit score, for use solely in the Prosper marketplace. A credit grade is one of the factors Prosper lenders may use (along with other factors, such as a borrower's other credit, income or employment information or the borrower's group's rating) to decide whether, and at what interest rate, to bid on a borrower's listing. Learn more about credit grades.

Credit history
The history of an individual's credit accounts, late payments, loans, bankruptcies, and any recent inquiries. This history is used by lenders to determine the creditworthiness of an individual.

Credit limit
The maximum amount a bank or other lender will let an individual borrow under a line of credit.

Creditor
A person who extends credit to a debtor.

Credit report
A detailed report that outlines a person's credit history. It includes a history of their credit accounts, late payments, loans, bankruptcies, and any recent inquiries.

Credit score
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information typically sourced from credit bureaus. Prosper uses the Experian Scorex PLUSSM credit score to determine a borrower's Prosper credit grade. Learn more about credit grades.

Creditworthiness
A measurement of a borrower's ability to repay a debt.

Daily rate
The interest rate expressed as a daily percentage rate, assuming a 365-day year.

Days past due
This designates the number of days that have passed since a monthly loan payment was due.

Debt
An amount of money owed to another entity for funds borrowed.

Debt buyer
A company that buys debts – often debts that are considered "written off" or uncollectible by the owner (seller) of the debt. Loans originated through the Prosper marketplace that become more than 120 days past-due are accumulated and offered for sale and sold to a debt buyer who makes the most desirable bid for the purchase of the delinquent loans. Learn more about default sales and debt buyers.

Debt consolidation loan
A single loan that pays off multiple existing debts, often resulting in lower monthly payment and longer repayment schedule.

Debt-to-income ratio
Debt-to-income ratio (or DTI) is a measurement of a borrower's ability to take on additional debt. It is a part of anyone's credit profile on Prosper. This number takes into consideration how much debt the borrower had prior to their loan in addition to what their debt will be if the loan they are requesting is made. (Their debt history is part of their credit history, and is reported to Prosper in the initial credit check.) The DTI is calculated by dividing the borrower's annual income (before taxes) into their annual non-housing debt payments. So while it won't reflect your mortgage, it would reflect your car loan. It is expressed as a percentage. Generally a DTI of 20% is at the upper end of normal when excluding housing debt.

Default
Failure to make the required payments or to comply with other conditions or obligations of a loan. On the Prosper marketplace, when a delinquent loan is sold to a debt buyer Prosper designates the loan as "defaulted." Learn more about default sales and debt buyers.

Defaulted loan
Although "default" technically means the failure to make the required payments or to comply with other conditions or obligations of a loan, Prosper uses the term "defaulted loan" to describe a delinquent loan that has been sold to a debt buyer, or deemed unsalable. Borrowers who obtain a loan through the Prosper marketplace that becomes a defaulted loan will not be allowed to borrow again on the Prosper marketplace. Learn more about default sales and debt buyers.

Default rate
See "Loss rate."

Delinquency
Failure to make loan payments on time.

Delinquent loan
A loan for which, as of a particular point in time, one or more scheduled payments have not been made. A delinquent loan is in contrast to a current loan.

DTI
See "Debt-to-income ratio".

Equal Credit Opportunity Act (ECOA)
A federal law that prohibits discrimination by any lenders or other creditors on any credit transaction based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity
In the real estate world, it's the difference between the fair market value of a property (what a property is worth) and what is still owed against that property (a mortgage balance, or other liens).

Failed payment fee
A fee charged to borrowers whose automatic monthly payment fails due to insufficient funds in the borrower's account or because of the closure, change or inaccessibility of the borrower's account. Loans obtained through the Prosper marketplace are subject to a $15 failed payment fee. Learn more about fees and charges.

Fair Credit Reporting Act (FCRA)
Enforced by the FTC (Federal Trade Commission), this act was passed by Congress to protect consumers when dealing with consumer reporting agencies (CRAs), also known as credit bureaus. The FCRA was designed to insure CRAs provide accurate credit histories, and to insure the privacy of that information.

FICO score
A FICO® score is a proprietary credit score developed by Fair Isaac Company, Inc., one of the companies that develops the formulas to calculate credit scores, and assess credit risk. To determine borrowers' Prosper credit grades, Prosper uses Experian Scorex PLUS^SM credit score developed by the Experian credit bureau, and does not use FICO® credit scores.

Finance charge
The cost of consumer credit, which includes any interest charges for the loan, and potentially other additional fees, such as closing fees.

Fraud alert
A fraud alert is a notation that consumers can place on their credit report if they suspect they have been a victim of identity theft. The existence of a fraud alert on a credit report requires a user of the credit report to verify the consumer's identity before granting credit.

Fully amortized loans
Fully amortized loans are loans that are paid in equal installments for a set period of time, at the end of which the loan will be paid off. While a portion of every payment is applied towards both the interest and the principal balance of the loan, the exact amount applied to principal each time varies (with the remainder going to interest). Initially, a large portion of each payment is devoted to interest, and as the loan matures, larger portions go towards paying down the principal.

Funding date
The date when loan proceeds are disbursed to a borrower.

Gross annual income
The total income amount from all sources (including salary, dividends, etc.) that an individual receives per year before any deductions.

Group
Prosper allows for the formation of small borrowing groups or communities, and allows borrowers to participate in the marketplace as a member of a group. Groups can be any formal or informal collection of people with common interests, whether based on social, cultural, ethnic, professional, educational, geographical, athletic, religious or other affiliation. Learn more about Prosper groups.

Group leader
The leader of a Prosper group. The group leader typically creates the group, recruits members and monitors, protects and promotes the integrity and reputation of the group. Learn more about becoming a group leader.

Group profile
The main page of a group, with basic information like the group name, a description of the group, the web address shortcut, and some privacy settings. Some group profile pages may include pictures as well. Learn more about editing a group profile.

Home equity line of credit (HELOC)
A revolving loan, with a set credit limit, for homeowners who borrow against the equity in their residence typically to make home improvements, consolidate debts, or make other significant expenses and purchases. The homeowner can normally access lien of credit advances with a credit card or checkbook.

Home equity loan
A loan for homeowners who borrow against the equity in their residence typically to make home improvements, consolidate debts, or make other significant expenses and purchases.

HR (High Risk)
The credit grade "HR" stands for "high risk" and is the grade given Prosper borrowers who have low credit scores. Learn more about credit grades.

Identity verification
Before you can become a borrower or lender on the Prosper marketplace, Prosper must first verify your identity and other aspects of your background, such as home ownership or bank account. Verification varies depending on the role for which you are registering on Prosper.

Inflation rate
The percentage increase in the price of consumer goods, usually expressed annually.

Instant transfer
Lenders who make a transfer of more than $500 and less than 20% of their active loan value can have the transfer funds be instantly available for bidding. These thresholds are lower for lenders who install Prosper's Facebook application. Learn more about instant transfer.

Interest paid
The total amount of interest paid to a lender for a loan, as of a particular date.

Interest rate
The cost to borrow money, expressed as a percentage rate, to be paid over a period of time.

Invitation only
If group membership is "Invitation only," only borrowers who are specifically invited by the group leader can join. Other group members can't invite potential members in an "Invitation Only" group—only the group leader can.

Late charge
A fee charged to borrowers who are delinquent, beyond a designated grace period, in making a loan payment. In most states Prosper borrowers are charged the greater of $15 or 5% of the delinquent loan payment if a payment is more than 15 days late.

Lender
A lender is an individual or institution that registers to bid on listings on the Prosper marketplace. Lenders are not lenders in the literal sense, as they do not actually lend their money directly to borrowers; instead, lenders make purchase commitments and purchase notes representing loans obtained by borrowers through the Prosper marketplace. All notes originated through the Platform are made by WebBank, and then sold to Prosper, and then to the lender or lenders who were the winning bidder or bidders on the listing that resulted in the loan. Prosper uses the term "Lender" instead of "loan purchaser" or "note holder" for the sake of brevity and simplicity. Learn more about becoming a lender.

Lender rate
The lender rate is the annual interest rate that the lenders who were the winning bidders on a there are entitled to receive on a loan, before deduction of loan servicing fees.

Listing
A listing is a borrower's request for a loan on Prosper. A listing includes the borrower's screen name, credit details, income and employment information, debt to income ratio, and requested loan amount and maximum interest rate the borrower is willing to pay. Learn more about creating a listing or bidding on listings.

Listing review
If a group requires listing review, listings of borrowers who are members of the group will be subject to review by the group's leader. The group leader will have 7 days to review the listing, and may agree or refuse to allow the listing to be posted as part of the group.

Loan application
A loan application is the format for a prospective borrower to use to request a loan. On Prosper, borrower loan applications take the form of a listing. Learn more about creating a listing.

Loan closing fee (charged to borrowers)
The fee borrowers pay for obtaining a loan. Borrowers who obtain a loan through the Prosper marketplace pay a loan closing fee of 1%, 2% or 3% (depending on the borrower's credit grade) of the amount borrowed or $25, whichever is greater. Learn more about fees and charges.

Loan servicing fee (charged to lenders)
The fee charged for collecting loan payments from borrowers. Prosper charges lenders a loan servicing fee at an annual rate of 1.0% of n the current outstanding loan principal. This fee is accrued the same way that regular interest is accrued on the loan. When a payment is received, the percentage is applied to the then-outstanding principal amount of the loan. Because the principal amount declines as the loan amortizes, the servicing fee amount declines slightly as the loan pays down. Prosper's servicing fee is deducted from monthly payments as they are received. Learn more about fees and charges.

Loan term
The period of time for a loan to be repaid. All loans originated through the Prosper marketplace have a term of 36 months (3 years).

Loss rate
The loss rate is a calculation of the chance that a borrower will default on a loan, based on historical loan repayment performance observed on the Prosper marketplace. The loss rate is provided on every bidding page, to enable lenders who are contemplating bidding on a listing to determine their estimated return on the loan, should they become a winning bidder for the listing. To obtain the loss rate pertaining to a listing, Prosper reviews loans already made to borrowers with similar characteristics, projects a loss rate based on payment history to date, and assumes this listing will have similar performance.

Manual bid
A bid placed on a listing directly by a lender. A manual bis is in contrast to a portfolio plan, which bids automatically using the search criteria specified by a lender.

Maturity date
The final monthly payment due date on a loan, when all remaining principal , interest and other accrued charges are due any payable in full..

Minimum rate
With respect to lender bidding on listings, the minimum rate is the lowest interest rate that a lender would be willing to receive on the borrower's loan if the lender were a winning bidder.

Monthly payment
The amount of principal and interest to be paid each month by the borrower on a loan.

Net gain/loss
The amount gained or lost after costs (taxes, interest, expenses, etc.) have been taken out of the gross sales or revenue.

Net income (accrued)
The total income that remains after all the costs (expenses, taxes, etc.) have been deducted.

Origination date
The date when a loan is made. On the origination date, the loan proceeds are made available to the borrower, and interest starts accruing on the loan.

Partially winning bid
A partially winning bid is a lender bid for which only a portion of the bid is matched with a listing. This only occurs with the last winning bid on a listing, and in such instances the remaining (outbid) portion of the bid is instantly made available to the lender for further bidding. The lenders' funds used for bidding are segregated from Prosper's own funds and are not used in Prosper's business in any way.

Per diem interest
A figure that represents the amount of interest accrued daily on a loan. It can be calculated by multiplying the remaining principal balance by the annual interest rate and then dividing that number by 365.

Prepayment penalty
A penalty a borrower must pay if a loan is paid off early. Loans originated through the Prosper marketplace do not have a prepayment penalty.

Primary account
The bank account from which a borrower wants to make monthly loan payments from. Learn more about external accounts.

Primary residence
The place where a person resides.

Principal
The original amount advanced to a borrower, or to others with the borrower's authorization, on a loan.

Principal balance
The total amount of loan principal remaining to be repaid on a loan.

Principal paid
The total amount of loan principal paid on a loan.

Promissory note
A borrower's agreement to repay their loan. Review Prosper legal agreements.

Refinance/refinancing
Paying off an existing loan by using the proceeds from a new loan. The same property is usually used as collateral. This usually occurs when the new loan will allow the borrower to save money through lower monthly payments, lower interest rates, or financing costs.

Return
With respect to loans originated through the Prosper marketplace, the amount a Prosper lender receives in principal, interest or late charges on a promissory note.

Revolving line of credit
An loan agreement between a lender and a borrower which enables a borrower to borrow up to a specific amount of money (known as the credit limit) in repeated transactions.

Routing number
A routing number is a nine-digit number that identifies a financial institution. The routing number is printed on checks and is used to route all financial transactions (like transferring money to or from Prosper) to the appropriate bank. This number appears on your personal checks in the lower left corner.

Secured loan
A secured loan (also called a collateralized or asset-based loan) is a loan for which the borrower pledges or grants to a lender a lien or security interest in a particular asset (e.g., real property, automobile, inventory, etc.) to secure the borrower's repayment obligations on the loan. If the borrower defaults on the loan, the collateral can be seized and foreclosed upon in satisfaction of amounts owing on the loan. Prosper does not offer secured loans, as all loans on Prosper are unsecured.

Secure Sockets Layer (SSL)
This protocol allows files to be safely transferred on the internet through encryption. Learn more about Prosper security methods.

Servicing fees
See "Loan servicing fees." Learn more about fees and charges.

Standing order
A standing order is an automatic bidding tool used by lenders, for having bids preplaced automatically on loan listings that meet specific criteria. Standing orders have been improved and renamed as "Portfolio Plans".

Supported groups
This is a way for lenders to designate specific groups they have supported by bidding on listings of the group's members.

Supporting lender
This is a designation for Prosper lenders who have supported specific groups on Prosper by bidding on listings of the group's members.

Tax rate
The annual percent of income owed in taxes. Learn more about lender taxes.

Term
See "Loan term".

Truth-in-Lending Act
A federal law that requires all credit terms to be disclosed to a consumer using a standard format. Review Prosper legal agreements.

Types of loans
There are many types of loans. Major types include mortgage loans, home equity loans, debt consolidation and refinance loans, auto loans and unsecured loans. All loans originated through the Prosper marketplace are unsecured loans, but the loan proceeds can be used for home improvements, for debt consolidation, to purchase a vehicle, to refinance an existing loan or loans, or for other purposes.

Underwriting
A term for the process a lender goes through when determining what kind of loan to make to a potential borrower. Underwriting involves an assessment of the borrower's credit history, employment, and other conditions to determine the risk of lending to the borrower, what rate and amount to loan, and at what terms.

Unsecured lines of credit
An unsecured line of credit means a revolving loan for which you don't have to offer any collateral, like a car or your house, to secure the line. A revolving line of credit is commonly accessed with a credit card or check.

Unsecured loans
An unsecured loan means a loan for which you don't have to offer any collateral, like a car or your house, to secure the loan. All Prosper loans are unsecured loans.

Upfront costs
Costs paid to apply for a loan, such as loan closing fees. Learn more about fees and charges.

Verification
Before you can act as a borrower or lender on Prosper, Prosper must first verify your identity and other aspects of your background, such as home ownership or bank account. Verification varies depending on the role you select on Prosper and your initial registration.