Individuals with good credit have a variety of alternatives when they need to borrow money.  Traditional banks have spent untold millions of dollars on brand advertising reinforcing the notion that borrowing from a bank somehow bestows prestige on quality borrowers.  But, does membership really have its privileges?  Smart borrowers know there are two things they should consider when borrowing money, the price and the terms.  Using these two criteria, Prosper’s marketplace is the best place for most borrowers with excellent credit to borrow. 

The better your credit rating the more you benefit from an underwriting process that takes into account your individual characteristics.  Traditional lenders segment borrowers into groups so they can centrally set pricing and terms.  This approach shortchanges the best borrowers in any segment because they are given an offer designed for the average customer.  On Prosper borrower rates are arrived at independently for every borrower.  Quality borrowers are rewarded for their individual credit characteristics and get the best price the market has to offer.  In many (if not most) cases these rates are lower than the rates quality borrowers pay to banks for a similar loan product.

Another way Prosper differs from traditional lenders is loan terms.  Because traditional lenders profit from borrowers paying higher rates, the terms of many traditional lending products are designed to attract borrowers with low rates, and increase rates over time to increase profits.  This is not a practice limited to lower quality borrowers.  Teaser rates, penalty pricing, no grace periods, and prepayment penalties are some of the tools traditional lenders use to increase portfolio profits for all their customers, including the ones with excellent credit.   Prosper has fair terms so borrowers know what they will be paying over the life of the loan.   Prosper loans have fixed rates that never change over the life of the loan.  Often banks label rates as fixed when they don’t float to market rates, but still reserve the right to change the rates based on their discretion at any time.  Prosper loans have a payment grace period before which a late fee is charged, and have no prepayment penalties.  Prosper believes that all borrowers should know for certain what they will be paying to borrow money, and should benefit from a low rate for the life the loan, not just at the beginning.

Maybe membership does have its privileges, if you join the right club.

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Kirk Inglis is the CFO of Prosper.