The Ultimate Guide to Investing With Peer-to-Peer Lending

For investors looking to diversify their portfolio, investing in peer-to-peer lending can provide an alternative investment that offers positive interest income over a shorter duration.

At Prosper, we’ve helped people achieve financial well-being for nearly 20 years—and as an investor, you can become a part of this noble mission, too.

Learn more about what it’s like to invest in real people through Prosper’s peer-to-peer lending marketplace and how you can get started, today.

In This Article

What is peer-to-peer lending?

Peer-to-peer lending (also known as marketplace lending) connects creditworthy borrowers to investors who want solid returns.

These lending platforms offer investors an opportunity to diversify their portfolio beyond stocks by allowing them to invest in unsecured personal loans.*

Marketplace lending can be an attractive product relative to other investment opportunities as the loans are short duration and scheduled to pay monthly.

Instead of investing in money market funds, you can invest directly in the loans taken out by borrowers through peer-to-peer marketplaces like Prosper.

How does peer-to-peer investing through Prosper work?

Prosper offers a unique tool for diversifying, earning and investing in real people. Through an online lending marketplace, creditworthy borrowers can request a loan, and investors can invest in “notes” (or portions) of each loan.

Prosper handles all loan servicing on behalf of the investors and corresponding borrowers. Let’s break that down:

Borrowers apply for a loan through Prosper and investors then have an opportunity to review and offer to invest in portions of each loan. Investment minimums start at just $25.
Once a borrower accepts a loan offer, investors then have 14 days to commit funds to the loan through their Prosper investing account.
After a borrower passes any additional verification requirements and one or more investor(s) commit enough funds to the loan, it’s ready for origination.
Loans through Prosper are amortized, meaning that borrowers make fixed, monthly payments (consisting of principal, interest and any fees) throughout the duration of the 2, 3, 4 or 5-year term of their loan.
Finally, investors receive a portion of these payments, proportional to the share of the loan they contributed to. These funds are deposited directly into investors’ Prosper accounts.
Investors can check-in on their investments through the Prosper Invest app at any time; Prosper also provides a Monthly Performance Update to investors.

Who can invest through Prosper?

To become an investor on Prosper’s platform, you must be a United States permanent resident or citizen, residing in a state that is open to investing through Prosper .

You must also be at least 18 years of age or older, with a valid Social Security number (or other Taxpayer Identification Number). Investors residing in certain states also need to certify that they meet certain financial suitability requirements required to investors in that state.

Investing through Prosper’s platform does not require any previous investment experience.

Benefits of investing through peer-to-peer lending

There are many things to consider before investing in peer-to-peer lending. Here’s a rundown of some of the advantages of marketplace lending:

Proven solid returns: The average historical return for loans originating through Prosper is 5.5% (as of June 30, 2024)¹.
Reduced risk: Marketplace lenders make it easy to diversify across many loans to help reduce risk of loss and drive solid returns. In increments of $25 or more, people can invest in several loans (or portions of loans).
Short duration: Typical marketplace lending loans have terms of 2-5 years. With no pre-payment penalties for the borrower, the effective duration of the loans originated through Prosper’s platform could be less.
Simplicity: Investing in marketplace loans is easy. Investors can choose to use an automated tool that searches for specific types of loans or manually find loans that match a desired risk tolerance. With Prosper’s Auto Invest, you can get started with a pre-set target investment mix or create your own. The interest you earn is automatically reinvested in new loans that meet your established investment criteria, help to ensure your money is always working for you – with minimal effort on your part.
Passive income stream: This may allow investors to earn money and build wealth with minimal participation or activity required.

Why invest through Prosper?

When you invest in borrower loans through Prosper, you are helping to impact the lives of borrowers who are consolidating debt, rebuilding their credit, preparing to make important purchases, and working toward financial well-being.

Over 20,000 investors are choosing to invest in Prosper’s borrowers—funding personal loans that total over $25 billion.

Many Prosper customers have had such positive experiences as borrowers, they choose to give back as investors.

As an investor, you can rest assured knowing that Prosper is taking steps to protect your information and your account, and tracks 300+ data points to identify fraud. Additionally, the cash balance of your Prosper investment account is FDIC insured by Wells Fargo Bank, N.A.²

Prosper has been helping borrowers and investors collectively achieve financial well-being for nearly 20 years. Today we are the only marketplace lending platform in the United States offering individual retail investors the unique opportunity to invest in unsecured consumer personal loans.

Our credit performance has generated returns through various economic environments and could be an attractive investment opportunity compared to other fixed-income products.

Ready to get started? Visit our Investor page to confirm your eligibility and download the Prosper Invest app.

Still have questions? That’s okay – we’re here to help. Visit our Help Center to access frequently asked questions about our products and investment offerings, or message us to get your specific queries answered.

1 Weighted average historical return for loans originated through Prosper as of June 30, 2024. To be included in the historical return (“Historical Return”) calculation, the loan must have originated (a) on or after July 1, 2009, and (b) at least 12 months prior to the calculation date. Historical Returns are based on actual payments (other than principal) received by the investor net of fees and losses (including from charged-off loans). We calculate the Historical Return for loans originated through Prosper as follows. First, loans are separated into distinct “Groups” based on the specific month and year in which they were originated and their Prosper Rating at origination. For each Group, we calculate: (a) the sum of the interest paid, plus late fees, minus servicing fees, minus collection fees, in each case on active loans, plus net recoveries on charged-off or defaulted loans, plus net debt sale proceeds on sold loans, minus gross principal losses; divided by (b) the sum of the principal balances outstanding on active loans at the end of each day since origination. We then annualize the result to get the “Historical Return” for the Group. Once this calculation is performed for every Group, we compute the cumulative outstanding principal dollar weighted average of their Historical Returns. This gives us the “weighted average Historical Return” for loans originated through Prosper. For purposes of this calculation, “active” means loans that are either (i) current in payments or (ii) delinquent, provided that delinquent loans that have charged-off or are in default are not considered active. Loans that have paid off are also not considered active.

The Historical Return calculation (a) is updated quarterly; and (b) excludes the impact of servicing related corrective non-cash adjustments that may modify the outstanding balance or status of a borrower loan. The actual return on any Note depends on the prepayment and delinquency pattern of the loan underlying each Note, which is highly uncertain. Individual results may vary. Historical performance is no guarantee of future results and the information presented is not intended to be investment advice or a guarantee about the performance of any Note.

2 Investor funds are held in a single, pooled funding account, which is referred to as the “pooled funding account.” The account is FDIC-insured on a “pass through” basis to each investor, subject to applicable limits. This means that each investor’s cash balance is protected by FDIC insurance, up to the limits established by the FDIC. Other funds the investor has on deposit with Wells Fargo may count against any applicable FDIC insurance limits.

Prosper’s borrower payment dependent notes (“Notes”) are offered pursuant to a Prospectus filed with the SEC. Notes are not guaranteed or FDIC insured, and investors may lose some or all of the principal invested. Investors should carefully consider the risks, uncertainties, and other information described in the Prospectus before investing. Investors should consult their financial advisor if they have any questions or need additional information. Actual results may vary.

Prosper does not provide investment, tax, or legal advice. The information and statements included in this article are not intended to be investment advice.

*All personal loans made by WebBank.