There are two large players in the peer to peer lending market in theUnited States: Prosper and Lending Club. Although these companies are similar in many ways, the distinct differences between them can help borrowers and lenders decide which one of these companies would be the best one to meet their needs. This peer to peer lending review will detail the features of both companies.
Prosper is considered to be the largest peer to peer lending marketplace in the world, with well over a million borrowers and lenders registered with the company. The company focus is to match people that want loans with people with money willing to lend to borrowers for a return on their investment. The loans accessed through the site are generally used as personal loans or small business loans issued to business owners.
Lending Club originally positioned itself as a social networking service that helped qualified borrowers obtain needed funding. The company created opportunities for borrowers registered with the site to identify group affinities and communicate with lenders, based on the premise that borrowers are less likely to default to lenders with whom they had affinities and social relationships.
Both companies assign pre-set interest rates to loan requests determined solely by the company using a formula that calculates each borrower’s credit risk. Lending Club focuses on high-credit-worthy borrowers in order to reduce default risk for lenders. Potential borrowers cannot have any late payments on their credit report for an entire year prior to applying for a loan with the company and the company uses debt collection practices on all borrowers who default.
On Prosper, new prospective borrowers are required to have a credit score of at least 640, a bank account, a Social Security number and are required to complete a peer to peer lending review Returning borrowers need a score of 600 to request a loan. The company verifies the borrower’s identity and personal data before listing the loan for funding and both borrowers and lenders are assigned screen names to protect their privacy. All loans through Prosper are unsecured, with no collateral needed.
Lenders considering bidding on the Prosper’s loan listings have access to data from the borrower’s credit history, including the number of current delinquencies, amount currently delinquent, delinquencies in the past 7 years, and other data. Lenders are also shown the borrower’s group membership, friendships with other Prosper members and any endorsements from those friends, past listings, and prior Prosper loans.
The funding and servicing of the loan are handled automatically by both companies for both the borrower and the lender. Loan requests made on Prosper can be between $2,000 and $25,000 and have repayment terms of one, three, or five years. Lending Club offers borrowers five-year loan terms or three-year loan terms on loans up to $25,000 and charges borrowers that choose five-year loans additional interest charges and origination fees based on the borrower’s credit grade. There are no prepayment penalties for either company for paying off loans early.
Both companies charge borrowers a one-time fee on funded loans. Prosper borrowers who receive a loan pay an origination fee of 0.5% – 4.5% depending on the borrower’s Prosper Rating. Lending Club charges borrowers an origination fee on loans based on a sliding scale, with 3-year loans incurring a fee of 2.0% on A loans, 4% on B loans, 4.5% on C loans, and 5% for loans of grade D and higher.
Both companies complete all transactions in US dollars and the borrowers must be residents of theUS. Prosper loans are available to US residents in 28 states and theDistrict of Columbia. Lending Club loans are available to US residents in 42 states. Many states that allow peer to peer lending review the information about each company’s business practices on a routine basis to ensure that their citizens are being treated fairly and that the companies are complying with the laws of the state.
The information in this peer to peer lending review about Prosper and Lending Club is intended to help borrowers choose which company would be better for their needs. Borrowers that have a credit score in the low 600’s have a better chance of being accepted for funding on Prosper than on Lending Club based on the lending criteria for each company. On the other hand, borrowers that have a high credit score may want to consider choosing Lending Club for their loan in order to access the company’s network of potential lenders and increase the chances of their loan being fully funded. Both companies provide numerous benefits to both borrowers and lenders.