Loan Reviews

LendingClub vs Prosper – Which is Better for You

EPF Last Update: September 23, 2020

Prosper and LendingClub are two of the largest peer to peer (P2P) lending platforms on the web today. Peer to peer lending is a platform that connects individuals and facilitates borrowing and lending without the use of a bank. These types of platforms have only been around for a few years now, but have become a very popular way of attaining funding due to the low interest rates.

The basics of how this works:

  • Borrower applies for a loan.
  • Lenders view the borrowers loan request and credit worthiness.
  • A variety of lenders provide funding to the borrower.

There is obviously a lot more to this process, but you get the idea. Below are some features that apply to both Prosper as well as LendingClub:

  • Minimum loan amounts.
  • Maximum loan amounts.
  • Origination fees.
  • Late fees.

LendingClub

Pros:

  • Loans can be used for just about anything.
  • Easy to use application process.
  • Only a soft credit check is used for applications.
  • Interest rates as low as 2 – 5%.
  • Loans up to $40,000.
  • Funding in 10 days or less.

Cons:

  • Origination fees equate to 1 – 5%.
  • If you need more than $40,000 you will need to look elsewhere.

Prosper

Prosper qualifications:

  • Minimum credit score – 640
  • Debt to income ratio – 50% or less
  • Maximum number of credit inquiries – 6
  • Minimum number of open accounts – 2

Pros and cons

Pros:

  • Loans can be used for just about anything.
  • Easy to use application process.
  • Only a soft credit check is used for applications.
  • Interest rates as low as 7.95% – 35.99%.
  • Loans up to $40,000.

Cons:

  • Origination fees equate to 2.4% – 5%.
  • If you need more than $40,000 you will need to look elsewhere.

The Application Process

The application process for both companies is quite similar, but we will break down both application processes for you in order to give you all of the information you might need in leaning towards one platform over the other.

  • Fill out the basic information and get a custom rate quote within a couple of minutes. The form will ask for basic information such as name, address and yearly salary.
  • If you get approved, you will be given the choice of various dollar amounts, interest rates and term periods. You then proceed to fill out the rest of the application and submit it.
  • You will need to verify your identity and wait for approval.
  • Wait for funding.
  • Get your money!

P2P for Business Loans

Both companies also offer loans to small businesses, but the process is a little bit different than it is for individuals.

Prosper does not offer loans that are specifically designed for businesses, they are just personal loans like any others so nothing changes in that process.

LendingClub on the other hand claims to offer loans up to $300,000 for small businesses. Any small business loan requires a personal guarantee, which means that the individual must commit to the loan if the business cannot repay it. Also, any loan over $100,000 requires some form of collateral.

LendingClub requires small businesses to have:

  • Been in business two years or more.
  • Have $75,000 or more in annual revenue.
  • Own at least 20% of the business.
  • Have fair personal credit or better.

If you have an established business in need of funding, LendingClub may be a very good option for you to consider. Their rates are often lower than that of many banks and you get your funding very quickly.

However, if you do not have an established business or are in a startup phase, you would have to apply to Prosper instead of LendingClub. Prosper only offers personal loans, which would give you the funds as an individual.

P2P as an Investor

Wall Street is now investing heavily on LendingClub and Prosper, so this certainly validates the concept for individual investors. Getting returns of 5-10% is fairly normal on these platforms. Those interest rates are better than what most investors can get with bonds or index funds.

When accepting an application, both platforms take into account the following:

  • Credit score.
  • Number of credit inquiries.
  • Length of credit history.
  • Total number of open accounts.
  • Credit card utilization.
  • Late payments and delinquencies.

Both platforms allow investors to contribute as little as $25 per loan, while also allowing lenders to fully fund a loan if they so choose.

The general consensus is that it is smarter to hold many small investments across many loans rather than any sizable ones. This allows for ultimate diversification, which is key if you want to lower your risk of losing money on P2P investing.

For example, let’s say you hold 10 loans and you contributed $1,000 to each. If one person defaults on their loan, you could easily lose any profits you may have made on the other 9.

However, if you hold 400 loans and you contributed $25 to each, it is much less likely that a few defaulted loans will significantly affect your returns.

Investing on either of these two platforms can be quite lucrative. It can also be time consuming at tax-time so be sure to document properly and route the cash flows to the appropriate places.

Conclusion

Both platforms are an excellent way for borrowers to access funds that they couldn’t otherwise find at lower interest rates, as well as an excellent way for lenders to get nice returns on their investments. Both platforms are very similar all around, so it is difficult to pick one over the other.

If you are a small business owner, you should apply to LendingClub.

If you are a startup, you should apply to Prosper.

If you are an individual, you should probably apply to both platforms and go with whichever one provides you with a better rate!

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