Should you borrow money to get up to 35,000 United miles from Prosper?

Yesterday morning, I received an offer to get up to 35,000 United miles with a personal loan from Prosper.  The offer is for 1 mile for each dollar borrowed.  Is that a good deal?  Is it worth it to take out a loan just to get the miles?  Could I take out a $35,000 loan, get 35,000 miles, and pay back the loan immediately so as to avoid interest payments?  Let’s see…

35000 United Miles from Prosper

Soft Pull

Applying for a loan from Prosper doesn’t lead to a hard pull on your credit report.  Splashed all over the Prosper website are assurances that “Checking your rate will not affect your credit score.”  However, according to forum posts found here, accepting the loan does affect your credit score.  OK, so we can at least click through and see what the deal is…

What does it cost?

Most loans have closing fees.  Prosper is no different.  On their help page, found here, they list the following closing fees:

Prosper Rating Closing Fee
AA 0.50%
A,B 3.95%
C-HR 4.95%

If no other costs were involved, then one might consider paying a 0.5% fee to get miles.  That would be like paying half a cent per mile.  I would never suggest paying 3.95% or more, though.  That would be like paying 4 cents or more per mile, plus you would incur a hard inquiry on your credit report.  That’s a terrible deal.

My Experiment

I was curious if I could qualify for that Prosper AA rating, so I clicked through to check my rate.  Look how easy it is:

Check Your Rate 35000 United Miles from Prosper

Oh, wait, there’s a bit more, but not much:

Check Your Rate Mileage Plus Info 35000 United Miles from Prosper

Then, “Get a Custom Rate in 1 Click”.  Make sure to use the Tab key to go from one text box to another because if you use a mouse you will click more than once, and that would make a liar out of them:

Check Your Rate Get a Custom Rate in 1 Click 35000 United Miles from Prosper

Then, finally, this:

You Qualify for 15000 United Miles from Prosper

OK, so they’ll loan me $15K instead of $35K.  But, they still don’t show the closing fee!

Not to be daunted, I clicked “Get this loan”.

A few text boxes and clicks later, I finally got the answer I was looking for:

Origination Fee: $750, Amount Financed: $14,250

If we calculate the fee as a percentage of total ($15K), we get a rate of 5%.  However, if we calculate it as a percent of the amount financed ($14,250), we get a rate of 5.26%.  Either way, that’s a ridiculous amount to pay for a loan, especially if you’re just in it for the miles.

If I were stupid enough to go forward with this, I’m unclear whether I would get 15,000 United miles or 14,250.  If we assume that I would get 15,000 miles, and that I would turn around and pay off the loan immediately so as to avoid interest charges, then my total cost per mile would be:

$750 / 15,000 miles = 5 cents per mile

Summary

Unless you somehow qualify for a Prosper AA rating, this is a terrible deal.

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

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Seb
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Seb

Wait, so there is an origination fee AND a closing fee? I don’t think they’re the same thing. Which makes this a really really bad deal…

Russ
Guest
Russ

I bet they are pricing the miles into your loan – try the same quote process in another browser and see if you get different rates.

Russ
Guest
Russ

Oops – not the same quote process, try for a regular quote without the miles.

Lantean
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Lantean

i saw the title and the answer was pretty clear to me, even without analysis…

Jen
Guest

Interesting. I invest in Lending Club (Prosper competitor) and have had a few loans pay off immediately after funding. Always wondered what those borrowers were up to.

stvr
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stvr

Not sure this post was worthy even of midnight pillow talk with wife.

Also, you and Gary crossed streams.

Ken
Guest
Ken

Prosper is like LendingClub, and I invested $5k in play money to screw around with it. It’s amazing how many people willingly get themselves into these loans with terrible terms. But it’s at least easy and convenient to do it online, so that’s likely a driver. I will say that I’ve had TONS of welchers on their loans that I contributed to. And even though my interest is hovering around 8% after welchers I still don’t feel comfortable with people borrowing my money without paying it back so I’m drawing down my balance and will close out my account when I get to $0.

Vic
Guest
Vic

Thank you for taking the time to calculate this for us.

Next time I see this offer in the mail I’ll just sherd it right away.

Greg
Guest

I was offered a $20,000 loan for $800 origination fee. 4 cents per mile = still a terrible deal.

Alex
Guest
Alex

You’ve left out one other reason not to do this deal: It’s United. ‘nuf said.

will s
Guest
will s

good detective work Shawn, echo the thanks…. Alerting us to likely bad deals out there, that’s a great service too in raising our guards, saving time & aggravation.

Ed
Guest
Ed

Always be wary of a clause that forbids early payment (or does so at the scheduled expense rate, incurring the interest as if you had kept the loan out the entire time).

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[…] Should you borrow money to get up to 35,000 United miles from. – Jan 27, 2016. Applying for a loan from Prosper doesn't lead to a hard pull on your credit report. Splashed all over the Prosper website are assurances that “Checking your rate will not affect your credit score.” However, according to forum posts found here, accepting the loan does affect your credit score. OK, so we can at. […]