Do not use second loan to pay off first

Prosper.com recently allowed borrowers to take out a second loan while the first is still active.

Now Prosper changed the Borrower's Agreement and included the following rule: "You may not obtain a Loan from the Prosper marketplace to pay off an existing Prosper Loan."

The discussion on this change is lively, with many lenders wondering about the reason behind this and how Prosper will enforce this rule. Prosper allows prepayments with no penalty. How will Prosper know where the money for the repayment came from?

A possibility is that Prosper added this clause to benefit from servicing fees longer.

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One thought on “Do not use second loan to pay off first

  1. The thought that Prosper has the no refi clause in there to allow it to gain servicing fees for longer doesn’t make sense. Prosper will continue to get servicing fees from the new loan. In fact, since the new loan starts later, if it runs for the full term, Prosper would get more servicing fees that the original 3 years worth it was supposed to get.

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