In a recent article we stepped through the basics of Peer to Peer lending. This new internet enabled is like a dating service for investors and borrowers. Rather than borrowing from banks at 10+% while CDs pay a paltry 1.5%, borrowers can benefit from lower rates while investors can reap similar benefits on their end of the transaction.
During my research for that article I became intrigued with the opportunities and committed to setting up investment accounts and reporting on my experience. Today this series begins with a look at the process for setting up an investment account with Prosper. Below I’ll unpack the process step by step so you’ll know what you can expect if you elect to follow suit.
Here goes. A step by step guide for setting up an investment account with Prosper. I’ve included several images but the sign up process is very quick and intuitive. It probably took me 10 minutes over 2 sessions (I’ll explain that below), and I was taking screen captures along the way.
Image 1 is simply getting started. Depending upon where you start, you’ll see one of both of these.
Image 2 is a 3 page personal profile.
Page 1 Collects your basic contact and identification details – name, address, phone, social, DOB.
Page 2 Collects your bank information. This is for the electronic tranfer of funds into your Prosper Account.
Page 3 Confirms your data entry and collects approvals for Legal Agreements and Disclosures.
Image 3, at this stage you have technically set up your account, but there are some housekeeping items. This page reconfirms your log on ID and assigns a temporary screen name. It also explains the process for verifying your banking account. This step is similar to other electronic or internet based accounts in that it makes a couple small transactions, each under $1 and asks for you to verify those amounts to confirm you own the account. The actual verification process may require a couple days depending upon the pace of the transactions.
Image 4: Meanwhile, you’ve recevied 3 emails from Prospser through the process thus far.
Below are images of each of the 3 emails. Presumably they could arrive in another sequence, but here they are as I recevied them:
Email 1 is a simple greeting
Email 2 asks that you verify you email address – clicking on the orange button takes you to your Prosper homepage, image to the right.
Email 3 confirms that a bank has been added to your account. This will happen even though the bank has not yet been verified.
At this stage you’re still waiting to verify your bank. But when you close the home page achieved from the email and attempt to reaccess it you get to select a security image that will appear each time you log on. Again, similar to other internet based banks.
Image 9 Select your log on image. Lots of categories and options are offered so you can select something reflective of your personality.
Image 10 Once back to you home page, you’re reminded to verify your bank account.
A few days later it’s time to verify your account. Prosper and Lending Club follow the same procedure. A small deposit and withdrawal is name to your account and you validate the amount to demonstrate ownership over the account.
Image 12 Enter the Deposit and Withdrawal amounts from your bank account and click to verify.
Image 13 Prosper will confirm your verification and you’re set to transfer money into the account.
Image 14 Time to transfer money. Prosper allows recurring deposits as well as the ability to schedule a future transfer. I opted or a single transfer for the sake of this demo.
Image 15 Here you confirm your intended transfer and your off. It’ll take a couple days for the transfer to take effect.
Once the confirmation is complete, you’ll collect an email communicating the same information and you’re back on hold waiting for the tranfer. I’m fine with this waiting period as it gives me time to read again about the investment options.
Another email will arrive once the funds transfer is complete and its now time to start investing.
Image 16 – Upon logging back into your account, you’ll notice that my $100 transfer is now availble for investing. Click Invest Now.
Image 17 – Not all of the features within Prosper are great and this, to me, is a dud. Immediately, I’m asked to automate my investments. In this process, you set your investment criteria and the system will auto-invest your funds. I’m sure there are folks who love this, but I’m not one, at least not with my very first experience.
Image 18 – so I back out and hit the Browse Listings button.
Image 19 – Another dud feature that pops up. Here they are promoting ‘featured’ loans. I appreciate the attempt at help, but I’d rather search and make my own selections, so I hit the View All Listings to continue.
Image 20 – Here’s what you’ll see when you select a loan. Loan Type, amount, term, yield, and funding % are all present. Then below you see the rating data for the borrower.
This is an example of one of the loans I selected. The A rating with high credit score and income looked very good relative to the 10.53% return.
Also note, that this page demonstrates the borrower rate (11.53%) for comparison against my return (10.53%). I knew the spread was small, but this is less than I had expected.
After making the decision to invest in this loan, I entered my investment amount and clicked “Invest Now”.
Image 21 – A pop-up screen will appear and ask that you confirm your investment. After confirming you may return to shopping investment options.
Image 22 – After making all your selections, you can view the Pending Investments from your account page.
My new selections are still considered Pending because the Loan process is still in process. A loan must receive miminum level of funding, (typically 70%), before it will close and similar to an auction, there is a timeframe for this to occur.
I selected loans that were all above or near the required funding level but each are still several days away.
Above are my selections, here’s why I made these selections:
Debt Consolidation 1 – This is a teacher with a high credit score making nearly $100k with a low Debt/Income Ratio. A near 15% return sounds worth this level of risk.
Debt Consolidation 2 – A near 800 credit score with over $100k income with very low Debt/Income. This is an A rated note according to Prosper, all of which surprised me that this would return over 10%.
Debt Consolidation 3 – This one is similar to #2 but not quite as strong. 700+ credit score, etc. In the notes section, not all borrowers complete this field, the borrower presents as a recent college grad (with a $50k income, nice), who reports no student loans. The borrow claims that this loan is to clean up bad credit card habits from college. That sounded familiar to me and with no student loans and solid income, I found this to be a compelling risk.
Home Improvement – This is by far my riskiest loan, with a scheduled return of over 25%. What was I thinking? Well, I may have rolled this dice but here’s my thinking. This is also one of the smallest loans I bought into. It’s a $4000 loan with a monthly payment of only $162. The borrower also has a upper-mid 700 credit score and great employment record. The borrower appears to be carrying no debt other than a mortgage and has a low debt/income ratio. My bet is that this borrower will pay this loan off early, in which case I only earn the high rate for a brief period. I guess we’ll see.
At this stage, I’m fully invested and waiting for my loans to originate, at which point they will be active and I’ll start receiving monthly payments. I look forward to tracking these loans and sharing with you my results.
If you’re at all interested in setting up a Prosper account, then I ask that you consider using the link provided below. This is my affiliate link, which means I’ll receive a small referral fee at no cost to you. If my materials helped in your decision making process, then this is a perfect way for you to say “thanks”.
Thanks for following along, and good luck in your investment strategies. If you do decide to invest with Prosper, I hope you’ll share your experiences and results in the comment field below.