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Or on the other end, lenders can get extremely good yield if they are willing to take more risk than a typical commercial bank. At the extreme, borrowers can get good deals from “desperate” investors who price their funding very low to get it deployed, in an eBay auction fashion. Because Prospers is a marketplace, borrowers can pick from several offers that differ in loan amount, APR, number of months, etc., more expedient than visiting several banks physically to get the same rate (as banks effectively use the same pricing model). Average variable APR ranges from 16%-25% while one can get a Prosper loan for 11% APR. Investor’s Intro Page: a sampling of loans looking for fundingįor borrowers, Prospers offers a compelling value propositions, especially for categories such as credit card debt consolidation. Banks invest in physical presence upfront in exchange for cheap funding, aka your deposits. Prosper runs its operations online, saving the costs of running and operating physical branches.Banks pay a fee to FDIC-insure their deposit base though that fee does not cover the entire cost of the insurance.
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Prosper loans are not FDIC insured, compared to checking accounts (that one “hires” banks to lend out on your behalf).The reasons Prospers can offer a higher rate of return for lenders are twofold: Additionally, starting at $25 investment, Prospers makes high risk high reward investing more accessible to a wider population, a proposition that comes with its own set of benefits and challenges. Effectively, instead of putting money in one’s also-zero yielding checking account or 1.5% APY Certificate of Deposits (the highest rate you can probably get from a commercial bank), one can skip the banks and lend to the top-tier borrowers for a yield of ~3.5%, gaining an additional 2%. Compared to the historic S&P 500 return of 5%, the average return of 7.86% is a nice boost (as of January 2017 production). For lenders, it provides a high risk, high reward investing alternative. Prosper creates value for both lenders and borrowers in several ways. Hence, Prosper makes an interesting case study of financial services as a platform business. Though a small portion compared to 2015’s estimated personal loan market size of $110 billion (Transunion), Prosper is making a conscious effort to increase the portion of its individual lenders via the launch of Prosper Daily, a personal finance app meant to increase consumer engagement. It matches lenders and borrowers, eliminating the role of banks as gatekeepers, capital allocators and underwriters. America’s first marketplace lending platform, Prosper has funded $6 billion in personal loans ranging from $2,000 to $35,000 since 2006.