Prosper announced that they plan to work with banks, rather than compete with them when they launch a new, online Prosper HELOC product. This choice is a strategic move beyond personal loans; the only product focused on by Prosper since 2005. Their new product arrives at a time when HELOC lines of credit are predicted to increase over the next few years.
If I could give you something on a much shorter time frame at a lower rate, one where you don’t have to take the whole funding immediately but you take the funding as you need it, that changes the dynamic.”
David Kimball, CEO of Prosper
Since its launch in 2005, Prosper continues to establish itself among the largest marketplace lending platforms in the U.S., with more than $13 billion in personal loans to date.
What makes Prosper HELOC different from many other HELOC loans?
Prosper CEO David Kimball explains: “Part of the reason individuals go for personal loans is that their home equity experience is so painful because it takes so long,” he says. “If I could give you something on a much shorter time frame at a lower rate. One where you don’t have to take the whole funding immediately but you take the funding as you need it, that changes the dynamic.”
What we don’t want to do is give loans to individuals who can’t pay us back,”
To accomplish this break from traditional (longer) methods, Prosper will use their online credit model to partner with participating banks starting in 2019. This opens up to the borrower a simpler, faster HELOC application process.
How exactly does their process work?
Prosper plans to use their well-established marketplace lending platform to streamline the application process. Then it will pass the information to a participating bank. Their landing page offers pre-populated data fields where possible. They will stick to relevant questions for each borrower. Once completed, Prosper will run the applications through a banks’ underwriting criteria using their own effective, machine-assisted underwriting model. “We’re always looking, just as the competition is always looking, for ways to improve underwriting,” Kimball says. “We’re looking at different sources of information to help us.”
By connecting with partnering banks prepared to issue the loan, the customer receives the benefit of a quick pre-qualification decision.
For many of our customers, a HELOC could be a better choice for their financial needs” Kimball explains. ‘We’re thrilled to be working with our bank partners to render the traditional process obsolete with a new digital HELOC process that is simple, fast, and painless.”
What are the advantages of a HELOC loan?
Kimball says, “The HELOC, because it’s secured, provides people who have equity in their home a way to get a less expensive source of borrowing.” This may be especially true as interest rates rise, making a lower rate line of credit more appealing than high-interest credit card debt.
Why is this a smart step for Prosper?
The landscape for personal loans, previously Prosper’s singular focus, is changing. In 2017, online lenders, including Prosper, experienced a rise in defaults on their loans. This lead to a tightening of credit standards and a decline in loan approvals.
“What we don’t want to do is give loans to individuals who can’t pay us back,” says Kimball. “That’s not good for the individual, it’s not good for the investor. So we’re always looking for ways to find people who are better willing or better able to repay.” Prosper will continue to offer personal loans as they branch out into a new lending territory.