Pre-Payment Pays Off: New Feature for Prosper Borrowers

Has anybody noticed the new features on the Prosper site?

There has been a small change to the borrowers' page: Estimated Final Payment. This is a subtle change, but it gives you an idea how much extra payments can accelerate your debt reduction.

In a previous post I mentioned that making extra payments pushes back your due date a month each time. You can see here that my next payment isn't due until April 30th 2008. Next look at the estimated final payment. When they create your loan you have 36 roughly equal payments. The final may be a little more or less. My final payment is now $50 less than my monthly payment. That means I've already shaved $50 off of my total finance charge even if I don't make another payment until April 2008!

I used the snowball calculator to examine four finance charge scenarios.

1. If I never consolidated my high interest credit cards and made fixed payments of $173.18 at the average APR of 29.5%. It would have taken me 48 months to pay off my debt. During that time I would have paid $3310 in finance charges.
   
   
2. If I made only scheduled payments to my prosper loan at 14.94% it would take me 36 months to pay off my debt. During that time I would have paid $1284 in finance charges and fees. (Prosper provides this calculator for borrowers.)
   
   
3. Making a few early payments to Prosper during the first six months, then going back to the regular schedule in April 2008. It would take me 36 months to pay off my debt. During that time I would have paid $1234 in finance charges and fees. (According to the estimated final payment provided by Prosper.)
   
   
4. Making a few early payments to Prosper during the first six months, then continuing to pay only $173.18 each month. This would allow me to pay off my loan in 32 months during which time I would pay only $947 in finance charges.and fees
   

Making extra payments pays off! Only three extra payments in the first 6 months alone could save me over 25% in total finance charges. Over 75% savings from the original credit card debt! Not to mention, making payments makes your lenders happy :)

My actual results will vary from these scenarios. I have a 0% balance transfer ending in January 2008. Since the interest rate is going up to 19.99%, I will be putting all extra money towards that balance until it is paid off. That includes the payments I'd normally make to Prosper. Once that card is paid off, however, my snowball will be directed towards the Prosper loan. Watch out, Prosper lenders. My snowball will be over $1200 a month by then! I expect this loan to be paid off by July 2008.

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Read more about my experience with Prosper:

• Goodbye 30% APR!
• Made an Extra Payment to Prosper Loan
• 7 Strategies to Reduce Finance Charges