Tuesday, April 15, 2008

Prosper eliminates state rate caps

Following Lending Club's lead, Prosper has opened up to borrowers in almost all states and eliminated state rate caps. All loans now have a maximum rate of 36%. The only exception to the nationwide plan is Texas (limited to 10% interest for personal use loans and 18% for business use loans) and South Dakota (cannot borrow).

Previously borrowing was not permitted in some states (like Nevada) and was restricted to businesses in some states (like North Carolina) and had very low rate caps in some states (like Pennsylvania). Prosper was able to eliminate rate caps by partnering with WebBank, a Utah-chartered Industrial Bank. Lenders do not technically lend directly to borrowers. Instead, they make a loan purchase commitments and purchase a promissory note from Prosper which represents the loan made by WebBank. WebBank assigns the loan to Prosper. WebBank is the same bank Lending Club uses to service their loans. All the legal details are on the state licenses page.

In addition to removing state rate caps, Prosper has made several other changes and upgrades.
  • Minimum instant transfer amount lowered to $50 - If you install Prosper’s Facebook application, you can instantly transfer funds from your bank account to your Prosper account as long as you have at least $100 in active loans. Previously transfers would take a couple days to go through unless you transferred more than $500 at a time.
  • Second loan criteria updated - The new rules for whether a borrower is eligible for a second loan are dependent on the borrower’s credit grade, and the factors taken into consideration include time since last loan originated, consecutive months of on-time payments, and whether the borrower’s credit grade has dropped or not. The total cumulative value for all of a borrower's loans is $25,000.
  • Lender servicing fee for AA increased to 1% per annum - Just three months after raising fees for borrowers, Prosper is also increasing the servicing fee for lenders. Previously the fee for AA loans was 0%. All the details are on Prosper's fees and charges page.
  • Listing durations standardized at 7 days - The listing creation process has been simplified and listing durations are all now 7 days.

4 comments:

Jake Stichler said...

Finally, Pennsylvanians (without absolutely perfect credit) can use Prosper!

Tom said...

Jake, are you from Pennsylvania?

Eric said...

And good news for Virginia also - which had a 12% cap.

Tom said...

Eric, I saw your post over on deepmarket.com.

I think you have a solid chance of getting a loan now that rate caps have been eliminated for VA. Especially since you have improved your credit grade from a C to a B.

The smaller your loan request, the better interest rate. If it is important that you get the full $25K I would set the rate at the max possible and let the market bid it down.

Right now C grade loans are are going for 19.10% when the dollar amount is above $10K. At $25K the rates are going to be a bit higher than that.

Let me know when you put your loan request up and I'll put in $50.