Prosper: Investing on YOUR Terms

What Prosper Is (and What It Isn’t)

Prosper sits in the marketplace lending world, connecting investors with consumer loans. But it’s important to be precise:
when you “invest on Prosper,” you’re typically purchasing securities that are tied to payments on specific borrower loansnot buying shares of a fund,
and not opening a bank account.

In Prosper’s structure, investors purchase Borrower Payment Dependent Notes (“Notes”). Those Notes are issued by Prosper Funding LLC,
and payments on each Note depend on Prosper Funding LLC receiving payments on a corresponding borrower loan. In plain English:
no borrower payment, no investor payment (and even when borrowers do pay, there are fees and other factors that impact what you actually receive).

Also: this isn’t a savings account. There’s no government-backed deposit insurance for your investment. Marketplace lending can offer attractive yields,
but it comes with meaningful credit riskdefaults happen, and they matter.

How Prosper Investing Works

The basic mechanics: Notes tied to borrower loans

Each Prosper Note corresponds to a specific borrower loan posted on the platform. The Notes are fixed-rate and generally have terms
that can span two, three, four, or five years. Payments are typically made monthly, and you receive a mix of interest and principal over time.

Here’s the critical legal-and-practical detail: the Notes are “special, limited obligations” of Prosper Funding LLC, and Prosper’s materials emphasize
that neither Prosper Funding LLC nor Prosper Marketplace guarantees payment of the Notes or the underlying borrower loans. That means you’re taking on
borrower credit risk, plus certain platform and servicing risks.

Where the loans come from (and why that matters)

Prosper’s prospectus describes that borrower loans originated through the marketplace are made by WebBank (an FDIC-insured, Utah-chartered industrial bank),
and then sold/assigned to Prosper Funding LLC. For investors, this “bank partner then sale” structure is common in fintech lending.
The practical takeaway is that there are multiple entities involvedand understanding who owes what to whom is part of responsible due diligence.

Minimums, diversification, and why $25 is a big deal

Prosper allows investors to start small: the Help Center notes a $25 minimum investment for individual general investment accounts.
That small unit size is a feature, not a gimmickit makes diversification doable.

Instead of putting $1,000 into one borrower loan (yikes), you can spread $1,000 across 40 Notes at $25 each. The goal is to reduce the damage of any
single default by not letting any single borrower become the star of your portfolio.

Risk ratings: how Prosper “labels” loan risk

Prosper assigns each loan listing a rating that indicates expected risk. The platform describes the rating as a letter grade tied to an estimated
average annualized loss rate range. Ratings are useful for organizing and filtering opportunities, but they aren’t magic armoreconomic cycles,
job loss, inflation pressure, and plain bad luck can still push real outcomes away from neat historical averages.

“On YOUR Terms” Really Means You Control the Knobs

Knob #1: How hands-on you want to be

Prosper generally supports both:

• Manual selection: You review listings and choose which Notes to purchase based on criteria you care about.
• Automation tools: Options like Auto Invest/recurring tools can help allocate funds according to preset mixes or rules.

Manual selection can feel empoweringlike you’re the underwriter with a laptop. Automation can feel calmerlike you’re building a system instead of
making a daily decision. “Your terms” is choosing which stress you prefer.

Knob #2: The risk-return mix (and what you’re actually choosing)

The classic marketplace lending tradeoff is simple:
lower risk usually means lower interest rates, and higher risk may offer higher rates but also higher default risk.
Prosper’s own materials highlight that historical performance is not a guarantee of future results, and that your actual return depends on the
prepayment and delinquency patterns of the underlying loans (which are uncertain).

Translation: you’re not choosing a guaranteed yield. You’re choosing a risk profileand then living with it through real-world borrower behavior.

Knob #3: Diversification level (the most underrated “term” you control)

If investing had a multivitamin, it would be diversification. The $25 minimum makes it easier to build a wide pool of Notes and avoid concentrating
your outcomes in a handful of borrowers.

A practical diversification mindset looks like this:

• Limit any single Note to a small fraction of your overall Prosper allocation.
• Spread across multiple risk grades instead of trying to “win” with one.
• Assume some defaults will happen, and build so they don’t wreck you.

Knob #4: Cash flow vs. compounding

Prosper investing often produces monthly payments. You can:

• Withdraw payments as cash flow (helpful if you’re building a side-income stream), or
• Reinvest payments to compound (helpful if you’re building a longer-term allocation).

A lot of people underestimate how much control this gives them. With stocks, your “cash flow” is optional and irregular unless you focus on dividends.
With Notes, the structure naturally produces paymentsso you’re choosing what to do with them.

Costs, Constraints, and the Fine Print That Actually Matters

The servicing fee (small, consistent, and very real)

Prosper’s Help Center states that while there’s no fee to open an investment account, investors pay an annual loan servicing fee that is
currently 1% per year for each payment received from borrowers on each Note. The fee accrues daily and is netted from payments.

This is one reason two investors can hold similar Notes and still end up with different “felt” outcomes depending on cash drag, reinvestment timing,
and the way defaults hit their specific mix.

Liquidity: can you get out early?

If your “terms” include “I might need my money quickly,” marketplace lending may not be your best friend.
Prosper’s prospectus explains that the Notes are not listed on a securities exchange and that transfers would require an approved online trading platform
and it also states that currently, no trading platform exists and there’s no assurance one will develop. The practical result:
investors should be prepared to hold Notes to maturity.

This is a key difference from many bond funds or ETFs, where you can generally sell quickly (even if the price isn’t what you hoped).
In Prosper-style Notes, early exits may be limited or unavailable.

Eligibility and state availability: not everyone can invest

Prosper’s investor information notes that retail investors must be U.S. citizens or permanent residents (18+), with a valid SSN (or other TIN in certain entity cases),
and must live in a state open to Prosper investors. Prosper’s Help Center lists the states currently open to Prosper investors, including large markets like
California, Florida, and New Yorkalong with many others.

Prosper’s prospectus also lays out that certain states may impose suitability requirements (income/net worth thresholds and limits tied to net worth),
which means “your terms” also includes “your state’s terms.”

Taxes: your returns may feel less exciting after April 15

Interest income from Notes is generally taxable, and losses/charge-offs can complicate the picture. The exact tax treatment can vary by situation,
and it’s worth treating tax planning as part of your strategynot an afterthought.

If you want marketplace lending exposure without current-year tax complexity, you may be curious about retirement accounts.
Prosper’s Help Center notes IRA investing through designated custodians (including AltoIRA and Inspira) and also mentions minimums related to fee reimbursement.
If you’re considering that route, read the custodian terms carefullycustodians can add fees and procedures that change the real-world experience.

A Reality Check: Risks You Should Take Seriously

Marketplace lending sits at the intersection of consumer credit and investing. It can be compellingbut it’s not “easy money.”
Here are the risks that deserve your full attention:

1) Borrower defaults (the obvious one)

P2P lending can experience higher default rates than traditional banking products. As Investopedia notes, lender returns can be attractive,
but investor losses can rise when borrowers defaultand there’s no government-backed guarantee like FDIC insurance for investments.

2) Prepayments (the sneaky one)

When borrowers repay early, you get principal back sooner than expected. That sounds gooduntil you realize your interest stream may shrink,
and now you have to reinvest that money (possibly at different rates, with different available listings).

3) Platform/operational risk (the one nobody jokes about)

In late 2025, Prosper publicly disclosed that it discovered unauthorized activity on its systems on September 1, 2025, and stated it acted to stop the activity,
enhance security measures, and investigate with a cybersecurity firm. Even if customer-facing operations continue, incidents like this are a reminder:
you’re trusting a platform with sensitive data and operational processes.

The right takeaway isn’t panicit’s preparedness: strong unique passwords, multi-factor authentication where available, and monitoring your credit
are reasonable hygiene steps when you participate in modern financial platforms.

4) Liquidity and “stuck money” risk

Because you may need to hold Notes to maturity, your money can be less flexible than a brokerage account with liquid securities.
That’s fineif you plan for it. It’s painfulif you don’t.

Practical Examples: What “Your Terms” Can Look Like

Example A: The Diversified Starter (small money, smart structure)

Let’s say you want to test Prosper investing without making it your entire personality. You deposit $500 and buy 20 Notes at $25 each.
You spread them across several risk grades and avoid overloading on the highest-risk bucket. Your goal isn’t to brag at a party; it’s to learn:
how payments arrive, how returns behave after fees, and how defaults (if they occur) affect your overall result.

Example B: The Cash-Flow Builder (structured reinvestment)

You invest $5,000 to $10,000, spread widely, and set rules that automatically reinvest a portion of payments while letting some cash accumulate.
This approach focuses on consistency: keeping diversification high and avoiding the “all-in on spicy loans” temptation that can blow up a portfolio
during a downturn.

Example C: The Guardrails Investor (risk limits first)

You decide up front: “No single Note above X% of my Prosper allocation” and “No more than Y% in the highest-risk grades.”
You treat your rules as non-negotiablelike a budget for your future self. Over time, you adjust based on actual performance and comfort level,
not based on hype.

How to Start Investing on Prosper Without Regretting It

1. Confirm eligibility and state availability. Make sure Prosper is open in your state and understand any suitability requirements.
2. Start small on purpose. Consider an amount you can afford to lock up through the typical term length.
3. Diversify immediately. Use the $25 minimum to spread risk across many Notes.
4. Choose a strategy you can stick with. Manual, automated, or hybridjust don’t switch styles every time you feel anxious.
5. Plan for taxes and cash flow. Decide whether you want to reinvest payments or withdraw themand understand the tax impact.
6. Monitor, don’t micromanage. Review performance periodically, watch delinquency trends, and rebalance your “mix” thoughtfully.

Conclusion: Prosper Can Be “On Your Terms”If You Define Them Clearly

Prosper investing is best understood as a way to access consumer credit as an investmentthrough small pieces, monthly payments, and a configurable
risk/return mix. The platform’s real advantage is control: you can diversify at $25 increments, choose how automated you want to be, decide whether
you prioritize cash flow or reinvestment, and set guardrails that match your risk tolerance.

The flip side is equally real: these are risky, speculative investments, defaults can reduce returns, liquidity can be limited, and platform/operational
risks exist in the modern world. If you go in with eyes open, a diversification mindset, and “terms” you can actually follow, Prosper can play a thoughtful
role in a broader portfolionot as a replacement for everything else, but as a deliberate slice of something different.

Next up is a 500-word “experience notes” sectionbecause knowing the mechanics is helpful, but knowing how it tends to feel in real life is what keeps
good plans from turning into regret.

Experience Notes: What “Investing on Your Terms” Feels Like After You Start

I can’t claim personal investing experience, but I can share a composite of common investor experiences and lessons that show up again and again
when people start using Prosper-style marketplace lending. Think of this as “field notes” from patterns investors often describeuseful, not universal,
and definitely not a promise of outcomes.

1) The first month feels weirdly quiet (and that’s a good sign)

New investors often expect fireworksbig jumps, instant gratification, a confetti cannon every time a payment lands.
Instead, the first month tends to feel… calm. You fund the account, purchase Notes, and then you wait. Some people interpret the quiet as “nothing is
happening,” when in reality the machine is working: borrowers are making payments, servicing happens behind the scenes, and your portfolio begins
behaving like what it isconsumer credit, not a meme stock.

2) Diversification stops being a concept and becomes an emotional support system

Almost everyone loves diversification in theory. Then the first late payment shows up and the theory becomes a coping strategy.
Investors who spread across dozens (or hundreds) of Notes tend to shrug off individual hiccups because one borrower doesn’t have the power to ruin their week.
Investors who start too concentrated often learn the hard way that “one bad loan” can punch above its weight emotionallyand financially.
One common lesson: set a maximum size per Note early and treat it like a rule, not a suggestion.

3) People underestimate how much “reinvestment” is part of the job

Prosper investing generates payments over time, which means your cash balance can slowly creep upward.
Many investors start with a plan to reinvest everything, then discover they have to make actual decisions:
Do I reinvest monthly? Quarterly? Do I keep a cash buffer? Do I automate it? The ones who enjoy Prosper most often build a simple routine:
“Once a month I reinvest anything over $X,” or “I use Auto Invest and only review performance quarterly.” The ones who struggle often check daily,
stress daily, and re-tune their strategy weekly. (That approach is great for anxiety; less great for consistency.)

4) Returns feel different when you see the “real world” of credit

Stock investors are used to volatility and headlines. Marketplace lending investors get a different reality: jobs change, medical bills happen, and
borrowers sometimes miss payments. That’s not a moral storyit’s a credit story. Many investors report that Prosper makes them more respectful of
underwriting and more aware of how macro conditions (rates, inflation, layoffs) show up in household finances. In good periods, payments arrive smoothly
and the portfolio feels steady. In tougher periods, delinquency and charge-offs remind you what risk actually means.

5) “Your terms” becomes clearer after you live through a few surprises

Common surprises include prepayments (your interest stream shrinks faster than expected), the impact of fees (small but consistent), and the realization
that liquidity isn’t guaranteed. After six to twelve months, many investors refine their terms into something concrete:
“I’m comfortable with this level of risk, this allocation size, and this time horizon.” That clarity is the real win. Prosper isn’t about chasing the
highest stated rate; it’s about building a credit allocation you can actually hold through the full term without panic-editing your plan.

If you want Prosper investing to feel like it’s on your terms, write your terms down. Yes, literally. Amount, diversification target, risk-grade limits,
reinvestment rhythm, and time horizon. When emotions show up (they will), your written plan becomes the adult in the room.