Thursday, March 02, 2006

Prosper.Com Revisited

In a previous entry, I spoke about and the benefits and drawbacks of their service. Before going any further, I'd like to thank's CTO and co-founder, John Witchel, for leaving some comments here to address the concerns I raised.

I decided to go ahead and try lending a small amount through - no more than $1,000. It has taken a while, but I have finally gotten approved to be a lender. I spoke a bit about this in the comments of the previous post, but I'll repeat it here in case you missed it.

When you apply to be a lender on Prosper, they run a credit inquiry on you with Experian to verify your identity using your driver's license number, social security number, address, and phone number. I had difficulty at this point - my application kept getting rejected. Sometimes I was told the verification service was unavailable and sometimes I was told my identity could not be verified. After double-checking I had not typo'ed any of my information, I decided the problem could possibly lie with Experian.

Back at the end of 2004, I had requested my free annual credit report from Experian and discovered several errors, including an incorrect driver's license number. I submitted corrections and supposedly, Experian fixed them. However, the correction letter I received from Experian only listed the credit account problems that were fixed. It did not indicate they had fixed my driver's license number. So it was possible that the report still showed my old driver's license number and that was a reason Prosper's ID verification was failing for me. Since it had been over a year, I was able to request another free copy of my credit report from Experian to verify the data again. I was unable to request the report via the web for some reason, so I had to call Experian directly to request it.

In the meantime, I had continued to try getting verified through Prosper's website. One time I noticed that there was a customer service number displayed on the error screen I was getting. It appears that they only display this number during the hours their customer service is open, so I had never seen it before. I called them up and was told I could fax a copy of my driver's license and social security card to them for an alternate method of verification. I faxed the documents and the next day, I received a call saying they received the fax and it was forwarded to their ID Verification department and I could expect a call from them shortly.

The next day, I got an email from the ID Verification department. They explained they had checked their logs and discovered my application was being rejected because I had applied for a business credit card using my home address as the business address, thus, they assumed I was a business and not a person, and my application was rejected. (One of my real estate LLCs is a home-based business, which is why it shares my home address.) Prosper's staff said they modified their verification criteria and I should now be able to complete the process on-line. I tried again and it worked!

The next step was to enter my checking account information. Once they had that, they made two small deposits to the account. I had to wait two or three days to see the deposits, but once I did, I just went back to Prosper's web site, logged in, and verified the amounts. I am now fully confirmed and can start lending - something I will do so just as soon as I deposit some money into that account. As I mentioned before, I am somewhat paranoid about giving companies permission to withdraw funds from my accounts automatically, so I opened a new checking account solely for use with Prosper.

I would like to comment that, so far, my experience with's customer service department has been fantastic. They understood my problem right away, offered a simple solution, and were proactive in keeping me updated on their progress. I am also glad they modified their verification routines to not fail someone if a business address is the same as a personal residence address. If they did not do this, millions of people who run a home-based business would be shut out of Prosper.

I just had a thought.. At a brick and mortar bank, you generally get a real low interest rate on your money in a checking account. However, I also have an account at Ing Direct, which pays a much higher rate. Now, the Ing account is a savings account, and there are federal restrictions on the amount of electric transfers that can occur in a savings account (a maximum of 6 electronic withdrawals per 30 days), so you can't might not want to link your Prosper account to your Ing account. However, the Ing account is also tied to a checking account at a brick and mortar bank. So if you tie both your Ing account and your Prosper account to the same checking account, you can electronically move your money from Prosper, where unused funds earn no interest, to your checking account, where they earn a tiny bit of interest, to your Ing account, where they earn a larger amount of interest. When you want to lend again, run the transfers in reverse. I'm guessing it would take 4 to 5 business days for money to make it way completely through the three accounts, but that's not too bad.

Oh, I did get my free credit report from Experian and they did indeed have my correct driver's license number. There were a couple other minor errors, but I'll get those fixed shortly.

I'll post more of my experiences with Prosper once I had made some loans and start receiving payments.


Steve said...

Very good information, Shaun. I'll definately bookmark this blog entry. Thanks for sharing!

Tiredbuthappy said...

" can't link your Prosper account to your Ing account..."

Why not? I did. I don't plan to move money back and forth much, so I'm not worried about exceeding 6 transfers in a 30-day period. It's true, as my loans start to be repaid, I won't be earning interest until I've amassed $50 in available funds and can lend again, but I think the loss of interest on that little bit of money will be offset by the good interest rates I'll be getting on my loans.

If Prosper makes their funds transfer process faster (it takes FIVE days right now) I may move money back and forth more often, but at the moment I don't intend to do so.

Shaun said...

Claire - you're right. There is no technical reason you couldn't link a savings account to Prosper. However, people should be aware of the Fed rule. FYI, this rule (called Regulation D) applies only to money transferred OUT of your savings account by electronic means (inlcuding transfers made via phone). You can have as many transfers INTO your savings account as you want. Therefore, you can move your Prosper earnings into your savings account as often as you want. It's the transfers into your Prosper account that might be limited.

It would be nice if Prosper made this a bit clearer. While you may not transfer money to Propser more than 6 times a month, it is possible you can be moving money from your savings account around to various other accounts such that your total transfers exceed 6 in a 30 day period.

As for Prosper's transfer time, thanks for the heads up. I know the initial two deposits for verification only took 2 days for me. It'll be interesting to see if other transfers take longer.

Josh Dorkin said...

Hey Shaun. I hadn't heard about Prosper until checking out the blog. Thanks for sharing! I'm going to let the rest of the gang know about the site.

CJLoerwald said...

Do you know how an early prepayment would work on there? Like borrowing 20k for a down payment and paying it off in 6 months after selling the house. I would assume you only pay the principle balance and not the interest for the entire three years but I couldn't find it specifically on there anywhere? Thanks,


Shaun said...

Prosper does not impose a pre-payment penalty. See for details on paying your loan early or making extra payments.

CJLoerwald said...

Thanks Shaun, I guess I didn't look hard enough.


Gualberto said...


Thanks for turning me on to the site. After reading your first article on it, I decided to raise $10,000 at 9.5%. I've already raised the full amount at 9%, with a couple days left in the auction. Hopefully it'll be down to 8.5% or less by the end. I think this will be a great marketplace for both borrowers and lenders in the future.

Shaun said...

Gualberto - I found your listing! I wouldn't mind lending to you.. That is, once my funds finally make it into Prosper.

ellena said...

I am currently in search for a loan, and I had started to look at as a possibility. And was looking for a loan for education.

I was wondering, if you knew, because I could not find this on the site, but does Prosper have lenders who lend to international students with no cosigners of sorts, as long as there is a solid plan of repayment and complete documentation as proof of identity, etc.

Thank you for your blog it was very informative.

Thomas Martin said...

Thats why its best to go with an FHA loan. FHA loans take more or a common sense approach to lending and are not credit score driven.

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