Peer-to-peer lending is one of the modern innovations that have developed thanks to the Internet. Through this type of lending, individual investors can lend money to other individuals for their various needs. This may be for debt consolidation, to launch a new business or for other reasons. The investors benefit from getting a great return on their investment while managing risk through the careful selection of borrowers and loan requests. The borrowers benefit by avoiding the often unpleasantly stressful and long traditional bank lending process. The two top companies that offer peer-to-peer loans are Lending Club and Prosper. Through an analysis of Lending Club vs Prosper, you will be able to better determine which one is right for your needs.
What Is Lending Club?
Regardless of whether you are analyzing Lending Club vs Prosper from an investment perspective or a borrowing perspective, you may need to know more about Lending Club specifically. Lending Club is a U.S. company with headquarters in San Francisco. It offers loans to individuals with amounts up to $40,000. This company has provided loans to more than 1.5 million customers since its inception, and loan proceeds have been used for debt consolidation, home improvement, major expenses and more. Borrowers can apply for a loan within a few minutes through an online application, and they may receive multiple loan options to choose from.
Lending Club then locates interested investors to fund the loan, and the loan is often fully funded within a few days. From an investor’s standpoint, the investor can examine multiple loan requests as well as the credit profile for each borrower. The investor has complete control over which loans they invest in and what their return is. While there is a possibility that the borrower will default on the loan and the loan funds will be lost, this is rare. Lending Club does a good job of screening and rating borrowers for its investor clients. With each monthly payment the borrower makes, the investor receives a portion of his or her investment back with interest.
What Is Prosper?
When you want to know more about Lending Club vs Prosper, you also need to learn about Prosper. Prosper is not quite as popular as Lending Club in the peer-to-peer lending world. But it is nonetheless a leading contender to consider for investing or borrowing needs. This U.S.-based company has extended more than 600,000 loans to different borrowers, and it offers loan amounts from $2,000 to $35,000. Interest rates range from 5.99 percent to 35.99 percent based on the borrower’s credit score and the loan amount requested. Loan terms are usually between three to five years, but borrowers can repay the loan early without penalty.
As with Lending Club, investors can review a credit profile for different borrowers and details about the loan requests. They can choose how to invest the funds, or they can ask Prosper to select loans for them to invest in. They use the borrower’s monthly payments to repay the investors’ investment with interest over the years. Investors could potentially lose all of their funds through these loans as well if the borrowers default. However, Prosper also does a great job vetting the loans, and defaults are minimal.
What is the Difference Between Lending Club Vs Prosper?
Now that you are aware of how Lending Club and Prosper can be used by borrowers for financing needs as well as by investors who are interested in getting a great return on their investment, you may be ready to start exploring the differences between Lending Club vs Prosper. While these two options sound very similar at first glance, there are some important differences between Lending Club vs Prosper that may make one option preferable for you.
Your interest rate is critical when you are deciding whether to use Lending Club vs Prosper. This is because your interest rate will affect the cost of financing overall as well as your monthly loan payment. When you consider all factors, Lending Club usually offers more affordable rates than Prosper. This is not always the case, however. Therefore, you should compare the interest rates for both options before you decide which one to use.
The second factor to consider when choosing between the options is the closing time. This is most important for borrowers who are applying for a loan with Lending Club or Prosper. Lending Club tends to close most of its loan requests within two days. While Prosper usually takes about three business days. For some borrowers, taking an extra day to get loan funds may not seem like a major issue. However, if you need to close on your loan urgently, this extra day may be a critical factor to pay attention to.
A third point to think about relates to loan fees. Prosper usually wins in this area. Prosper often charges a five percent closing fee. And Lending Club may charge up to six percent as a loan fee. While the fees are called different things, the impact on a borrower is the same. An extra one percent on a $30,000 or $40,000 loan can be a substantial amount of money. This is not an issue when you are comparing these lending programs from an investor standpoint.
A final point to consider if you are trying to decide relates to where the loans can be issued. If you live in Iowa, you cannot apply for a loan through either of these lending programs. If you live in North Dakota, Maine or Pennsylvania, your only option is to apply for a loan through Lending Club. For those who live in West Virginia, Lending Club is not an option. However, Prosper does make loans in West Virginia.
So, Which One Is Best for You?
If you are trying to decide between Lending Club vs Prosper, it is important to determine what your options are as a first step. For example, if you need a $40,000 loan amount, Lending Club is the only option available to you. You also need to focus on the acceptable states for each program. For those who have both options available to them when loan amount and location are considered, you may also need to think about how quickly you need the money. If you need money more quickly, paying a higher loan fee through Lending Club is important. On the other hand, if timing is not an issue, then you may want to choose a lower rate through Lending Club.
From an investor standpoint, having access to a larger number of loans through Lending Club may be better for you if you want to mitigate risk. However, with higher rates through Prosper, you may get a higher return through this company.
Peer-to-peer lending is changing the way people invest as well as how they apply for loans. There are so many variations between Lending Club and Prosper. And because each investor or borrower may have unique factors to consider or goals to accomplish, it is important to make your own decision. Consider getting loan quotes from both lenders before you decide how to proceed.