- There is risk. Loans are not guaranteed—some will default. Understanding Prosper Ratings, credit scores and other credit data can help you measure and avoid unwanted risk.
- A diversified loan portfolio may enable you to spread your risk among many borrowers. Consider spreading your investment out with smaller amounts across many listings. You can invest as little as $25 per loan.
- You can view individual loans in order to choose loans one by one, or use Quick Invest to help you assign risk criteria and efficiently invest in a group of loans all at once.
- Transfer amount must be between $25 and $10,000.
- Sum of pending transfers cannot exceed $50,000.
- Your active loan value must be greater than $0.
- Your cash balance cannot be negative.
- Prosper Rating
- Expected loss rate
- Loan term
- Economic environment
- Competitive environment
- You can search for individual loans and manually invest by clicking “Invest Now” from any loan.
- You can use Quick Invest which allows you to efficiently invest in a group of loans. You specify the Prosper Rating and any other selection criteria and Quick Invest will find loans that meet your criteria.
- With new funds of $25,000 you can sign up for Prosper Premier. This priority service is a convenient way to earn great returns by letting our analysts execute your investment strategy for you.
- If the listing ends with insufficient funding (i.e. not enough investors invested in the listing).
- If the borrower withdraws the listing.
- If Prosper cancels the listing.
- Sign in to your Prosper account.
- Go to Invest tab, Quick Invest section.
- Enter an amount to invest and a maximum amount to invest per loan.
- Choose which Prosper Ratings you would like to invest in.
- Choose additional criteria (optional).
- Click on “find loans.”
- Review your order results; make modifications as needed.
- Confirm your order.
- By completing a Quick Invest order: Simply click the “Automate” button at the end of placing your order, and Automated Quick Invest will place your order – just as you’ve instructed in Quick Invest – as new loans that meet your loan search criteria become available. No need to sign-in to invest in the loans you want.
- From the Automated Quick Invest page: Any loan search criteria you’ve saved will appear on this page. To automate investment in any of your search criteria, simply check “Automate” and set a maximum investment amount per loan. You can also set an order limit — or let your order run until your available cash runs out.
- Date: The date that the borrower’s payment was withdrawn from their bank account.
- Payment number: An internal accounting number that can be used to identify each payment uniquely. If a payment is later disputed, the disputed line item will contain the same payment number.
- Total paid: Your pro-rated share of the gross payment made by the borrower.
- Non-Sufficient Funds (NSF) fees: If the borrower owes Prosper any fees for failed payments (typically due to NSF), these will be subtracted from the gross payment amount.
- Total received: The gross amount received by the investor, which excludes NSF fees.
- Late fees: If the borrower has any accrued, unpaid late charges, these are paid to the investor.
- Interest: If the borrower has any accrued interest since the last payment, this is paid to the investor.
- Principal: Any remaining funds received are allocated to principal.
- Service fees: If any investor servicing fees have accrued, these will be charged to the investor as an expense.
- Collection fees: If the loan has been assigned to a collection agency, collection agency fees will be charged to the investor as an expense.
- NSF (Failed payment) fees (to Prosper)
- Late fees (to investors)
- The borrower’s entire loan balance is accelerated, meaning it is collectible in full as of the charge-off date.
- From the borrower’s perspective, interest continues to accrue on the principal balance just as it did before the charge-off. There are no changes to the interest rate or the way interest is accrued. Late fees are no longer charged.
- From the investor’s perspective, the loan’s principal balance is labeled the “charge-off balance.”
Prosper Investor Help
Who can participate on Prosper?
Individual investors must be United States residents who are 18 years of age or older and have a valid Social Security number. Institutional investors must be based in the United States and have a valid Taxpayer Identification number. All investors must have a checking or savings bank account.
Individual investors may also be required to meet suitability requirements established by their state of residence.
For individual investors who are residents of Alaska, Idaho, Missouri, Nevada, New Hampshire, Virginia and Washington: Investors must either: (1) have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings, and automobile) of at least $70,000; or (2) have a net worth (determined with the same exclusions) of at least $250,000. In addition, no investor located in these states may purchase Notes in an amount in excess of 10% of the investor’s net worth, determined exclusive of home, home furnishings, and automobile.
For individual investors who are residents of California: For California investors who purchase $2,500 or less in Notes, your investment must not exceed 10% of your net worth. To purchase more than $2,500 of Notes, a California investor member’s investment must not exceed 10% of his or her net worth, and either: (1) the investor member must have had a minimum gross income of $85,000 during the last tax year and will have (based on a good faith belief) minimum gross income of $85,000 during the current tax year; or (2) the investor member must have a minimum net worth, (exclusive of homes, home furnishings, and automobiles,) of $200,000. Assets included in the computation of net worth shall be valued at not more than fair market value.
For individual investors who are residents of Maine: The Maine Office of Securities recommends that an investor’s aggregate investment in Notes and similar offerings not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.
For purposes of these suitability requirements, an investor and his or her spouse are considered to be a single person. In addition, the following definitions apply:
“Annual gross income” means the total amount of money you earn each year, before deducting any amounts for taxes, insurance, retirement contributions or any other payment or expenses;
“Net worth” means the total value of all your assets, minus the total value of all your liabilities. The value of an asset is equal to the price at which you could reasonably expect to sell it. In calculating net worth, an investor should only include assets that are liquid, meaning assets that consist of cash or something that could be quickly and easily converted into cash, such as a publicly-traded stock. An investor shouldn’t include any illiquid assets, such as homes, home furnishings or cars.
“Net investment” means the principal amount of Notes purchased, minus principal payments received on the Notes.
Please refer to the prospectus for additional information.
What states are open to investors on Prosper?
Prosper is currently available only to lenders 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, Virginia, Washington, Wisconsin and Wyoming.
Do I have to be licensed?
You do not need to be licensed to be an investor on Prosper. Although you are sometimes referred to on the Prosper website as a “lender,” you are not actually lending your money directly to Prosper borrowers, but are, instead, acting as an investor purchasing Notes issued by Prosper that are dependent for payment on payments we receive on the corresponding borrower loan. Prosper sometimes uses the term “lender” instead of “investor” on our website for the sake of brevity and simplicity, and for the convenience of Prosper users who appropriately view Prosper as a marketplace for connecting individuals who wish to borrow money with people who have money and the desire to fund loans to other individuals.
What is a borrower loan?
A borrower loan is a loan originated through Prosper that is made to a borrower by WebBank, a Utah-chartered industrial bank, member FDIC, and then subsequently sold and assigned by WebBank to Prosper. All borrower loans are unsecured, fully amortizing loans and may be for three or five years. Not all borrowers are eligible for one and five year terms, eligibility is based on Prosper Rating and size of loan request. For each loan, interest accrues on the principal balance daily. Fees that are payable to the investor, such as accrued interest, and principal are deducted from the borrower’s payment and paid into each investor’s Prosper account every time the borrower makes a payment. Borrower payments are due once a month.
The interest rate calculation is:
Interest rate/ 365 = daily interest rate
Daily interest rate x principal balance = Daily interest amount
Prosper loan amounts range from $2,000 to $35,000. The maximum loan amount for any borrower is determined by the borrower’s Prosper Rating, as shown in the table below:
Note: In limited instances, the maximum loan amount may differ due to constraints based on other variables.
What loan terms are offered?
Prosper offers fixed rate, “fully amortizing”, unsecured loans from $2,000 to $35,000. Loan terms of three and five years are available, depending upon a borrower’s Prosper Rating and loan amount. There are no penalties for paying off the loan early or for making partial prepayments.
Does Prosper guarantee repayment of Notes?
No, Prosper does not guarantee repayment of Notes. Read the prospectus to learn more about the risks of investing in Notes.
What fees does Prosper charge for being an investor?
There is no fee to sign up to be a Prosper investor.
Investors pay an annual loan servicing fee, currently set at 1% per annual of the outstanding principal balance of the corresponding borrower loan prior to applying the current payment. The fee is accrued daily, the same way that regular interest is accrued on the loan. It is calculated as: the annual servicing fee divided by 365 multiplied by # days since last payment, then multiplied by the outstanding principal of the loan.
In the event that a borrower loan becomes past due, Prosper may assign a professional collection agency to collect the overdue amount. Each collection agency has its own fee structure, but will only collect a fee for their services if funds are recovered.
What should I know before I start investing?
How do I research risk and returns through historical data?
To research the risk and returns for borrower loans, the marketplace performance page includes historical performance data from the Prosper marketplace.
Bank Accounts and Money Transfers
You can transfer money to Prosper and it will be added to your Prosper account cash balance. When a payment comes in for one of your Notes, it’s also added to your Prosper account cash balance.
You can manage the bank accounts available for transfers, including adding new ones, deleting old ones, and managing multiple accounts on file. Before you can transfer funds between your bank account and Prosper, you must verify that you are the account holder.
To verify your first bank account, Prosper will make one deposit and one withdrawal to your bank account (both less than $1.00). These two transfers should arrive in your bank account within 2-4 business days. After the verification transfers have completed (look for an email from Prosper), you need to find the exact amounts of the transfers from your bank’s website or by calling your bank. Enter these amounts on Prosper to verify your bank account.
To verify subsequent bank accounts, you will need to supply Prosper with a copy of a voided check for that account.
Once a bank account is verified, you can transfer money between it and your Prosper account cash balance. Transfer money now.
Unless you are eligible for instant funds transfers, it takes four business days to complete a normal funds transfer from your bank account to Prosper. Transfers are only processed on banking business days. A transfer is processed on the same day if the request is received before 3:00 PM PT; otherwise it is processed on the following business day. A minimum of $25 is generally required for outbound transfers; however, once per month, you may transfer an amount less than $25.
When a transfer to Prosper meets certain requirements, funds are made available in an investor’s Prosper account instantly, with no delay.
Requirements for instant transfer:
What method does Prosper use for transfers?
Bank transfers are done through an ACH (Automated Clearing House) transfer. ACH is a 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, for example. Funds from ACH transfers may take two to four business days before they become available in the destination account.
Can I cancel a funds transfer?
You can only cancel a funds transfer which is not yet processing (that is, a status of “Scheduled”). Go to “My Account > Accounts”, click on “View transfers“, and then click “Cancel” next to the transfer that you want to cancel.
How do I add a new bank account?
To add a new bank account, you will need to send a copy of a check from your account and your driver’s license to Prosper for verification. For security reasons, Prosper manually verifies and adds all additional bank accounts. These documents can be scanned and emailed to [email protected] or be sent by fax to 415-869-2877. Click “Add a bank account” to print a fax cover sheet for this purpose.
If the account you are adding does not have checks we ask that you email a copy of your most recent bank statement showing your name, address and account number. You may write the routing number on the statement or include it in the body of the email.
How does Prosper treat the funds in my Prosper investor account? Are the funds FDIC-insured?
Prosper is not a bank, and does not take and hold deposits. Prosper does not pay interest on funds held in the Prosper account. All funds Prosper investors place with Prosper to invest in borrower loans are maintained in a pooled account at Wells Fargo Bank, N.A. titled in our name “for the benefit of” our investor members.
Funds in the FBO account will always be maintained at an FDIC member financial institution. Investors have no direct relationship with Wells Fargo Bank, N.A. by virtue of participating on our platform as a borrower or investor. We maintain and administer the FBO account. No Prosper monies are ever commingled with the assets of investors in the FBO account.
The FBO account is FDIC-insured on a “pass through” basis to the individual investor members, subject to applicable limits. 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 Bank, N.A., for example, may count against the FDIC insurance limits.
What are Financial Suitability Requirements?
Some states require that individual Prosper 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.
Can I invest my Individual Retirement Account with Prosper?
Yes! Investing with Prosper is available for Individual Retirement Accounts. If you’re contributing to your Traditional, Roth or SEP-IRA, or plan to open an IRA or 401(k) rollover, we will work with you to open your Prosper IRA. Learn more about the advantages of the Prosper IRA. Note that Prosper is not a tax advisor; please consult with a tax professional to determine whether investing in Prosper Notes through a self-directed IRA is right for you.
Who is Sterling Trust?
An Individual Retirement Account requires a custodian, and to ensure the best service for your retirement asset, we’ve partnered with Sterling Trust who is the leader in self-directed IRAs. Founded in 1974, Sterling serves over 128,000 individuals and businesses nationwide, with $10 billion in assets under custodial and retirement administration. Prosper and Sterling Trust are not affiliated with one another. All IRA services are offered solely through Sterling Trust.
Why do I need a separate email address to sign-in to my Prosper IRA?
At this time, we require separate email addresses for the regular Prosper investment account and the Individual Retirement Account because they are considered separate accounts. We recognize the inconvenience this may cause, and are working towards a solution where an investor will need only one email address for both accounts.
What is a borrower listing?
A borrower listing is a request by a Prosper borrower for a loan for a specified amount, at an interest rate as shown on the listing. Investors are given specific credit information about the borrower and loan details to make an investing decision. A loan listing includes a Verification Stage icon to let investors know how far along the loan is in the verification process, during which Prosper verifies information and documents submitted by the borrower that are key to evaluating the loan. Learn more about the Verification Stage and Prosper’s Verification Process.
What is the Verification Stage?
The Verification Stage is a three-stage indicator of the progress on the Prosper loan, based on Prosper’s verification of the borrower’s identity, information and documents submitted that are key to evaluating the loan. The further along in verification, the higher the Verification Stage and the more likely the loan will originate.
What is the purpose of Verification stage?
The Verification Stage icons tell both prospective investors and the borrower how far along Prosper is in processing the loan application. The higher the stage, the more likely the loan will fund and originate. Borrowers improve the Verification Stage of their loans by submitting required documents promptly upon request to speed up completion of the loan application. Loan listings that reach the highest Verification Stage 3 are much more likely to fund and originate than loans in Stage 1.
How do I view a loan’s Verification Stage?
The Verification Stage of a loan listing is represented as an icon within the loan listing.
How is the Verification Stage different from the Prosper Rating?
The Prosper Rating is our proprietary system that allows us to maintain consistency when evaluating each loan. Prosper Ratings allow investors to consider a loan application’s level of credit risk because the rating represents an estimated average annualized loss rate range. In contrast, Verification Stage is not a measure of potential credit risk. It is only an indication of the progress of a loan application based on verification of required information and documents. However, a loan listing in Verification Stage 3 indicates that the borrower’s information is farther along in Prosper’s verification process thereby increasing the likelihood that the listing will become a loan.
Does reaching Verification Stage 3 guarantee that a loan will be funded?
Reaching Verification Stage 3 only indicates that Prosper has verified most of the information and documents submitted, and does not guarantee that a loan will be funded.
What do the V-1, V-2, and V-3 icons mean?
Verification Stage 1
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.
Verification Stage 2
Prosper has verified some information provided by the borrower, but there are still items pending verification. 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.
Verification Stage 3
Prosper has verified most of the information provided by the borrower. Additional documentation may still be required, but loans in Verification Stage 3 are very likely to originate.
Is the loan application process complete when it reaches Verification Stage 3?
Not necessarily; we may need more documentation.
Can the borrower improve a loan’s Verification Stage?
A borrower can advance the Verification Stage by promptly providing information and documents upon request by Prosper. The Verification Stage, therefore, can serve as a signal that a borrower is serious about the loan application and is working to complete the verification process as quickly as possible.
Can a Verification Stage go backwards?
Yes, if during our document review we discover that we need additional information. For example, if we can only verify partial income for the year, we may have to request additional documents for a full year’s income from the borrower.
What are saved searches and watch lists?
You can search for listings by keyword, Prosper Rating, and a few other parameters. If you want to set more specific search criteria, you can do an advanced search. Learn more about searching listings. When you have an advanced search customized to your preferences, you can save the search to use again later using the “save this search” option. Once a search is saved, it will appear on your search and listing results pages.
A watch list, or a list of your favorite listings, can help you keep track of listings without investing in them. To watch a listing, just go to any listing and click the watch link. You can also share your watch list with the public: go to “Settings > Edit Member Page > Share Your Watch List” on your member page.
What is the Trading Platform?
Folio investing provides a trading platform on which Prosper investors may offer their Notes for sale or bid on and purchase Notes offered for sale. Learn more.
What are loan interest rates and estimated lender returns?
Loan interest rates are set by Prosper and are based on factors including:
Rates can change over time. The current interest rates and estimated returns are:
*Estimated Return is the difference between the Estimated Effective Yield and the Estimated Loss Rate. Estimated 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. The Estimated Loss Rate is the estimated principal loss on charge-offs, and is based on the historical performance of Prosper loans. All estimates are based on the historical performance of Prosper loans for borrowers with similar characteristics. The calculations of Estimated Return, Estimated Effective Yield, and Estimated Loss Rate require significant assumptions about the repayment of loans, and investors should make their own judgments with respect to the accuracy of these assumptions. Actual performance may differ from estimated performance.
How do I invest in listings?
There are three ways to invest:
I prefer to invest in multiple loans at once. How can I do that?
Try our investing tool, Quick Invest, which helps you to set basic or detailed criteria so that you can invest in many loans at once, rather than review individual listings one by one.
Why are funds taken out of my account each time I bid on a listing?
The funds are not immediately withdrawn from your Prosper account, however, they are set aside while the listing you are investing in is active. If the listing becomes sufficiently funded and the loan originates, then your funds will be withdrawn and you will be issued a Prosper Note that is dependent for payment on payments Prosper receives on the borrower loan described in the listing. There are also a few occasions when your funds will not be withdrawn from your account and will instead be made available to you again for investing:
Can I cancel my investment?
No, you cannot cancel or withdraw investments once they are placed.
What are Prosper Ratings?
Each listing will be assigned a proprietary credit rating by Prosper, referred to as the Prosper Rating. The Prosper Rating corresponds to an estimated average annualized loss rate range. This rating system allows Prosper to maintain consistency when assigning a rating to the borrower and allows investors to consider a loan applicants level of credit risk.
Learn more about Prosper Ratings.
Why is a Prosper borrower listing pending review?
Once a Prosper borrower listing is fully funded it must pass the loan review process before it is approved, During this time, the status of the listing is shown as “pending review.” Prosper’s pre-loan review process can take as little as two and up to eight business days.
If the borrower does not pass loan review, the borrower listing is cancelled and funds committed to the listing are immediately returned to investors to use in another investment.
What is Quick Invest?
Quick Invest allows you to efficiently invest in a group of loans using criteria you set, such as Prosper Rating, without having to select each loan individually. You simply specify the amount of money you would like to invest and the types of loans you want to invest in. Quick Invest helps you choose the loans that match your criteria. You can review the selected loans and make modifications before placing your order.
You can save your Quick Invest criteria so it’s easy for you to use again.
How will Quick Invest help me?
Quick Invest is the fastest, easiest way to find a set of loans that meet your criteria so you can invest your money all at once. Quick Invest allows you to set basic or detailed investing criteria and to modify those criteria in order to fine-tune your investment order.
Diversification is often thought of as the key to smart investing. Quick Invest helps you spread your investment out across multiple loans without having to sort through loans one at a time. You can invest as little as $25 per loan, which reduces the impact if any one borrower goes into default, therefore lowering your risk in order to get better returns. Try Quick Invest now.
How do I use Quick Invest?
It’s easy to diversify your portfolio and invest in a range of loans efficiently with Quick Invest. Here’s how:
After you submit your investment order, you will be given the option of saving your criteria so that you can use them again on your next investment. Shortly after your order is submitted, we will send an email confirmation of your Quick Invest order. Try Quick Invest now.
How does Quick Invest choose loans?
Once you set criteria, Quick Invest finds all the loans in our marketplace that meet your criteria. If the number of loans that meet the criteria exceed the investment amount, Quick Invest first selects the loans with the highest Verification Stage and then those that were created first and closest to closing.
If you select multiple Prosper Ratings, Quick Invest divides the investment amount equally among those Prosper Ratings and then selects the loans with the highest Verification Stage, followed by those that are closest to closing within each Rating. If the investment amount does not divide equally among the selected Prosper Ratings, a larger amount is allocated to the lowest risk Prosper Ratings first, based on the maximum investment amount per loan. If there are insufficient loans available within a particular Prosper Rating(s) to fulfill the investment amount, the remaining money is allocated equally among the remaining selected Prosper Ratings, with the priority going to the lowest risk Prosper Ratings, based on the maximum investment amount per loan, if there is not an equal distribution.
Investment amounts in some loans may be less than the maximum amount you specified. This will generally be due to some loans needing a smaller amount to become 100% funded; Quick Invest will invest the smaller amount. Additionally, each Prosper Rating you select might not be represented in equal proportion; it will depend on the number of loans available and funds needed in each Prosper Rating category at the time you invest.
Quick Invest will display all the loans selected for investment that meet your criteria. You can review the listings and make modifications to the order before you make the final funding decision.
Why does my final Quick Invest investment differ from my submitted order?
Most of the time, you will get the loans you request. However, because Prosper is a dynamic marketplace, on certain occasions your final loan allocation may be different from the order you submitted. This is because although Quick Invest executes your order as soon as possible, there may be loans within the order that become unavailable during that time. This happens when loans expire, are withdrawn or become fully funded by other investors. The investment amount per loan on some loans may also be less because the amount needed to fully fund the loan was less than your desired amount. In addition, once your order has been placed, loans may still expire, be withdrawn or cancelled. As a result, your total investment may be less than the amount in the order you submitted, which can affect the distribution of selected Prosper Ratings, investment amount per loan, and the estimated return. Note that you can track the status of all your orders in the My Quick Invest section.
What is Automated Quick Invest?
Automated Quick Invest is Prosper’s tool that places a standing order for loans that meet an investor’s search criteria. You can automate your investment two ways:
Investments are confirmed by email (based on your preferences). You can modify your Automated Quick Invest order at any time.
Can I apply my saved Automated Plans criteria to Quick Invest?
Your Automated Plan criteria are not transferable to Quick Invest. However, your saved searches are transferable. You will see a link to saved searches when you go to the Quick Invest page.
It is easy to set up new Quick Invest criteria and once you place an order, you can save the criteria to use over and over again.
How do we calculate Annualized Returns?
To calculate Annualized Returns, a total gain or loss is calculated by summing all loan payments received net of principal repayment, credit losses, and servicing costs. The gain or loss is then divided by the average daily amount of principal outstanding to get a simple rate of return. To annualize that rate, we divide it by the dollar-weighted average Note age of your portfolio (calculated in days) and then multiply it by 365.
Why do we show Seasoned Returns?
The return that you earn on your Prosper investments is based on the lifecycle of the underlying Notes. Because a Note cannot default until it’s missed five payments, your return for the first four months will be based entirely on those loans that remain current. This can result in a temporarily higher return than should be expected for young portfolios.
As Notes age, you may see initial defaults between their fifth and ninth months – based on our own research, our Note returns show increased stability after they’ve reached ten months of age. For that reason, we define “Seasoned Return” as the Annualized Return for Notes aged 10 months or more. We encourage you to pay closest attention to your Seasoned Return when evaluating the performance of your portfolio.
Why do we exclude Notes traded on Folio (and how might this affect your returns)?
We present Annualized Returns on Prosper Notes to simplify the comparisons with other investment returns, but the sale of a Note on our trading platform represents a discrete return that we don’t believe should be annualized.
For example, if you purchase a Note through Prosper on January 1, receive a single payment on February 1, and then sell it at a 5% premium on February 2, your Annualized Return on that transaction would be more than 50%. But there is no on-going return from the transaction, so annualizing the figure would be misleading.
Only non-delinquent Notes can be sold on Folio; for investors who trade aggressively, a larger percentage of Notes may remain that are delinquent or defaulted. The relationship between “current status” and “ability to be sold” will cause a lower Annualized Return calculation than would have been the case for a non-trader.
How do promotional payments affect my returns?
Lender Promotion Returns are calculated separately from Annualized Returns. Lender Promotion Returns include any investor promotional payments you may have received since 2009, allocated by the period in which you received the payments, and are divided by your Total Dollars Invested for the Purchase Period to get a simple rate of return. This rate is annualized using our estimate of a Prosper loan’s weighted average life, currently 15.9 months. Total Returns are the sum of Annualized Returns and Lender Promotion Returns.
How does Prosper work to prevent borrower fraud?
For all borrower loans, the borrower’s identity is verified against data from consumer reporting agencies and other identity and anti-fraud verification databases. Loan listings can be posted without obtaining any documentation of the borrower’s ability to afford the loan. In some instances, the income or employment information provided by applicants in listings is verified. This verification is normally done after the listing has been created but before the loan is funded, and therefore the results of the verification process are not reflected in the loan listings. If material information with respect to a borrower or listing cannot be verified, Prosper will cancel or refuse to post the listing or cancel any or all commitments against the listing. Prosper may also delay funding of a borrower loan in order to verify the accuracy of information provided by an applicant in connection with the listing, or to determine whether there are any irregularities with respect to the listing. If Prosper identifies material misstatements or inaccuracies in the listing or in other information provided by the borrower, it will cancel the listing or related loan.
How does Prosper protect the purchaser of a Note against identity theft?
If there is a default under a Note due to verifiable identity theft of the named borrower’s identity, Prosper will in its discretion either repurchase the Note or indemnify the Note holder against losses on the Note. The determination of whether verifiable identity theft has occurred is in Prosper’s sole discretion and Prosper may require proof of identity theft, such as a copy of a police report filed by the person whose identity was wrongfully used to obtain the fraudulently-induced borrower loan, and identity theft affidavit or a bank verification letter (or all of the above) in order to determine that verifiable identity theft has occurred.
How do I receive my monthly payments?
When a borrower makes a payment on a loan, after a short delay for processing, your portion of the payment will be added to your available cash balance in your Prosper account. You can use the funds to invest in more loans or transfer them to your bank account as you wish. Because different loans have different payment due dates, most investors with multiple notes see a continuous stream of small payments added to their account throughout the month.
Where can I view my Notes and their payment histories?
Go to “My Account > Notes.” Click on the Note ID to view individual note details, including the payment history. Monthly payments are due each month on the same day of the month as the origination date.
Can I sell my Notes to others?
Yes, you can sell your notes to others using the Folio Trading Platform.
What happens if a borrower makes an additional loan payment of pays off a loan early?
Borrowers have the option to pay all or part of the outstanding principal balance of a borrower loan in advance of the due date at any time. There is no penalty to borrowers for doing this. Partial prepayments will not change the monthly payment amount, but may shorten the loan term, resulting in the investor receiving less interest overall.
Why do borrower payments take so long to reach my account?
Borrower payments are requested from the borrower’s bank account on the day they are due, and because Prosper, like most banks, electronically transfers money through a secure network called the Automated Clearing House (ACH) system, the entire process takes four business days.
On the Note detail page for the borrower’s loan, you will see the payment status as “Processing” during these 4 days. Once the payment has cleared, the payment status will change to “Paid.”
How are payments allocated to a borrower’s loan balance?
When a borrower makes any payment on a borrower loan, the breakdown of that payment is available in the “Payment history” table on the “Notes” page. Go to “My Account > Notes” and click on “Note ID.”
Funds from incoming payments are applied in this order of priority:
What is a chargeback?
It is possible that a borrower who has made a loan payment in the past can have his or her bank cancel and request a refund on that payment. This is referred to as a chargeback, and will appear on your Note payment history table as “charged back.” This is most common with borrowers who use the bank draft method of payment, where paper checks are printed and the check bouncing process is much longer. Prosper handles chargebacks according to our borrower chargeback policy.
What happens if a borrower is late on a payment?
If the borrower is more than 15 days late on a borrower loan, the borrower will be charged a late fee. The late fee is divided up pro-rata among the borrower’s investors. If the borrower loan is more than one day past due, we may collect on it directly or we may turn it over to a collection agency. If the borrower loan is more than 30 days 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 121 days, the borrower loan will be charged-off. Charge-offs are eligible for sale to a debt buyer. A borrower whose loan has charged-off will never be able to borrow again from Prosper, and since we report delinquencies to credit reporting agencies, the charge-off will adversely affect their credit report.
Under no circumstances should you attempt collection on a late payment yourself. 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. Prosper suspends investors who engage in this sort of activity.
Who are the collections agencies and how do they work?
If the borrower loan underlying one of your Notes becomes delinquent, Prosper may attempt to collect on the loan directly or it may use a collection agency to recover unpaid balances.
Because one collection agency will have responsibility for collection, all of the investors on a delinquent borrower loan will pay that agency’s fees out of any amounts collected. If no amount is collected, investors do not pay collection fees. Collection agencies charge a percentage of any recovered funds as the service fee for their efforts. This percentage varies by collection agency, but may be up to 40% of the funds recovered.
What is a charge-off?
A borrower loan is charged-off when it reaches 121 days past due. This means the borrower has missed the last five monthly payments. When a borrower loan is charged-off:
Charge-offs will 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. Prosper 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 post-charge-off are considered “recoveries,” and pay down the loan’s balance, but the loan stays charged-off. Depending on whether the loan is in collections with Prosper or an outside charge-off collection agency, recoveries may be subject to collection fees. Once charged-off, the borrower no longer has the opportunity to bring the loan current, only to pay it in full.
How is Prosper characterized for tax reporting purposes?
For purposes of interest income reporting, Prosper reports as an intermediary, known as a “nominee recipient” under Internal Revenue a section 6049. Nominee recipients are responsible for reporting (via forms 1099) proceeds which are ultimately disbursed to recipients. This is the same method of reporting used by stock brokerages.
Does SEC registration have any impact on how taxes are reported to the IRS by Prosper?
Although the matter is not free from doubt, we treat the Notes as our debt instruments that have an original issue discount (“OID”) for U.S. federal income tax purposes. We will file information returns with the IRS in accordance with such treatment unless there is a change or clarification in the law. There are no statutory provisions, regulations, published rulings, or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes.
You should be aware, however, that the U.S. Internal Revenue Service (IRS) is not bound by our characterization of the Notes, and the IRS or a court may take a different position with respect to the Notes’ proper characterization.
(See Questions Related to OID Tax Reporting below.)
What forms and statements will Prosper provide for tax preparation purposes?
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 calendar year. 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.
If you would like to receive a paper copy of your tax forms, please contact customer support.
You will receive a form 1099-INT in each tax year that you earn $10 or more in interest on Notes purchased prior to 2009, unless you live in a state for which there is an applicable reporting exception (see below).
You will receive a form 1099-MISC in each tax year that you receive 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.
You will receive a form 1099-OID in each tax year that you have 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. This form details income reported on Notes that are subject to OID tax reporting. See Questions Related to OID Tax Reporting below.
If you sold Notes on the FOLIOfn trading platform during the tax year, you will receive a Form 1099-B from FOLIOfn that shows your sale date, proceeds, and cost basis, broken down into short and long term gains. You will receive a Form 1099-B from Prosper for any Notes that were charged off/ discharged during the tax year or recovery payments received during the tax year.
When will my tax documents be available?
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.
What if I have had loans charge-off or sold to a debt buyer?
Charge-offs, recoveries and gross proceeds from any bad debt sale to a third party will be reported to investors in a year-end investor statement and on tax form 1099-B. In the case of a debt sale, the sales price can be compared to the cost (or other basis) to calculate the net amount of gain or loss. The summary table at the bottom of the Form 1099B provides short- and long-term data. Investors are encouraged to consult their tax advisor to determine their tax basis on loans sold to debt buyers.
Delinquent (late) loans which have not yet been sold to a debt buyer will have no impact upon taxes until further action on these loans takes place.
My forms have my SSN on them. Can I use a different tax ID?
No. When you joined Prosper and agreed to the Prosper lender registration agreement, you agreed that your earnings and losses from your activity on Prosper would be assigned to your Social Security number (SSN). Prosper is required by the IRS to report in this manner.
What if I do not file my taxes on a calendar year basis?
You should consult your tax advisor to determine the methodology behind adjusting your 1099 to reflect a non-calendar tax reporting. Prosper is required by the IRS to report on a calendar year basis.
What if I have questions?
Prosper does not provide tax advice. Each taxpayer’s situation is unique. Please consult your tax advisor for more information.
Contact customer support if you have a question on any of the values reported on the Prosper-generated tax forms or end-of-year statement.
Questions Related to OID Tax Reporting
How does the treatment of Notes as debt instruments with original issue discount impact tax reporting?
You will generally be required to report OID income as ordinary interest income for U.S. Federal income tax purposes, regardless of your regular method of tax accounting.
How do servicing fees impact OID income?
OID income is reported net of servicing fees and collection fees.
How does buying and selling Notes on the Trading Platform impact tax reporting?
Notes acquired on the Trading Platform that were originally issued in 2009 or later are subject to OID tax reporting during the period they are held. For Notes acquired on FOLIOfn, OID income will be based upon the re-amortized payments received accounting for the premium or discount of the Note net of fees at the time of acqusition. In instances where the Note was acquired for a discount, the OID income will be greater that the interest paid by the borrower on the corresponding borrower loan, and in instances where the Note was acquired at a Premium the OID income will be less that the interest paid by the borrower on the corresponding borrower loan.
Proceeds from sales of Notes on the Trading Platform will be reported by FOLIOfn Investments Inc. in separate form 1099-B, available through Prosper’s website.
What if I have additional questions?
Prosper does not provide tax advice. Each taxpayer’s situation is unique. Please consult your tax advisor for more information.
Please read the Prosper Tax Guide to get answers to frequently asked questions. Contact customer support if you have a question on any of the values that are reported on the Prosper-generated tax forms or end-of-year statement.