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This digital age has brought to the market many new and unique ways for investors to make a return on their money. Let’s face it, the stock market can be brutal at times, or can be your absolute best friend.

But what if there was a type of investment that gave you consistent returns? Ever wonder how banks make their money? That’s right, through lending money to its clients, aka you and me!

The digital age has allowed consumers like us to play the bank, and lend out our own money to help fund the requested loans from others in need of capital.

That’s where “Peer to Peer Lending” has come into play. If you have read up on peer to peer lending, you probably have come to the conclusion that there are really two companies to choose between when starting to invest. Those companies are A) Prosper.com and B) LendingClub.com.

In this article I am going to compare Prosper vs. Lending Club.

There are definitely pro’s and con’s to both, and it is absolutely worth knowing when deciding where to start.

I will also briefly cover the basics of what peer to peer lending is and how you can make money in it, followed by reviewing the two companies Prosper.com, and LendingClub.com. I will cover the pro’s and the con’s in each, and give some info on who each company is best suited for.

What is peer to peer lending?

As briefly stated above, peer to peer lending is when two consumers come to an agreement on a loan. Person A needs a loan, and Person B is willing to lend money. Person B will charge an interest What is peer to peer lending?rate for the cost of lending his money to Person A, just as a bank would.

But to make things a bit easier and far less risky than just that, many companies have formed to be the middle man between the borrower and the lender. That is where Prosper.com and LendingClub.com come into play.

Both companies serve as the underwriters to help determine the risk of each borrower, so that the lender can know how credit worthy the person is when lending out their money. Make sense? If not, here is a quick example:

  • James needs a $15,000 loan to pay for the costs of updating their outdated kitchen. John is an investor looking for ways to diversify his investments and make a return on his money. James has decided to submit an application to a peer-to-peer lending platform (Prosper.com or LendingClub.com) to see if he can get a loan for his kitchen renovation. The peer-to-peer lending platform has reviewed his credit worthiness, and posted his loan to their website for their investors to see. John is an investor on the platform and decides to contribute $1,000 to the loan, along with multiple other consumers helping contribute to the total amount James is requesting. Once the loan amount is reached, James signs the note and agrees to the terms, and is issued the money to renovate his kitchen. The $15,000 is paid back within a 3-year period, and both James and John (along with the other contributing investors) benefit and live happily ever after!

The overall average long term return of the whole stock market is around 10% give or take (keep in mind that is over a 30+ year average, with some years much higher/lower). With peer-to-peer lending you can make returns of over 20% on your money! Do I have your interest? If so, keep reading. Lets discuss the pro’s and con’s of the two leading peer-to-peer investment platforms.

LendingClub.com


LendingClub.com has been around almost as long as the concept of peer-to-peer investing, and thus has established itself as one of the trusted and strong platforms. They were established in 2007 and have some amazing statistics worth noting (according to lendingclub.com):

  • 99% of investors with investments in multiple loans have seen a positive return on their money
  • Investors can see a 2-5% cash flow on their money through the monthly incoming loan payments
  • Currently have over 150,000 investors
  • Over 1.5 million borrowers
  • Over $31 billion invested

The Pro’s of LendingClub.com

  • Market experience and long track record
  • Large pool of borrowers, thus more loans to choose from when deciding investment options
  • Option to set up automatic investments based on a predetermined strategy
  • Added help and tools for determining investment strategy
  • Access to a mobile app for quick and easy monitoring and accessability
  • High % of positive historic returns for their investors
  • Low fees for investors (LendingClub.com keeps between 1%-3% of interest rate on loan based on repayment terms)
  • Options to open retirement accounts such as an IRA (Individual Retirement Account)

The Con’s of LendingClub.com

  • Lower historic returns when compared to Prosper.com for its investors (6% on average according to LendingClub.com)
  • High minimum balance requirement to start investing. LendingClub.com requires a total minimum balance of $1,000 to open an account, with options to invest as little as $25 per note.

Who is LendingClub.com best suited for?

LendingClub.com appeals very well to the investor looking for options to diversify their stock portfolio. They have a deep and strong understanding of underwriting each investing risk, and as a result their returns are on average conservative and overall positive.

If you are within 15 years of retirement, LendingClub.com is a great option to ensure you have all the tools you need to ensure you invest only in the notes that meet your retirement goals.

If you have at least $1,000 to begin and want to work with the most experienced and accessible peer-to-peer lending platform, LendingClub.com is your best bet!

Prosper.com

Prosper.com has been around since the beginning. As established as America’s marketplace lending platform, they have definitely brought a very competitive product to market for the peer-to-Invest with Prosperpeer lending investors (and borrowers).

Prosper.com has been in the peer-to-peer lending industry since 2006 and has helped investors contribute over $10 billion dollars in loans. Here are some other statistics to consider:

  • $25 minimum investment per loan, and to open an account
  • 83.5% of active investors on prosper.com state they met or exceeded their expected return on their money
  • 710 is the average FICO score of borrowers seeking loans
  • $89,142 is the average household income of its borrowers seeking loans

The Pro’s of Prosper.com

  • Low minimum of just $25 to open account
  • Minimum of $25 to invest per note allows more consumers to enter the peer-to-peer lending market as an investor
  • Ability to automate your investments based on desired risk tolerance
  • 710 average FICO score of borrowers gives investors peace of mind knowing their money is being lent to credit worthy borrowers
  • Borrowers have higher than national average household income
  • Higher average investment returns when compared to LendingClub.com (7% on average return according to Prosper.com)


The Con’s of Prosper.com

  • No app for mobile access
  • Investor online account could be better. Not as detailed information on your invested money.
  • I have had times when there were no loans to select when looking for investments, suggesting their pool of borrowers is smaller

Who is Prosper.com best suited for?

If you are just getting into the peer-to-peer lending market as an investor and don’t want to risk a lot of money to start, Prosper.com is your best bet with the ability to open an account with just $25 and invest in as many notes as desired with just $25 each.

Prosper.com seems to have a bit higher return on average for their investor, suggesting that they A) have lower fees or B) the loans presented are riskier (higher risk suggests higher loan interest rate, resulting in potentially higher investment returns). If you have a long way till retirement (15+ years), I’d say Prosper.com is an excellent choice.

The time to act is NOW!

When all is said and done, you can’t go wrong with either Prosper.com or LendingClub.com. Both are fantastic companies with long track records of success, and reputable names.

Personally, I started out with Prosper.com long ago as I wanted to test the waters of the peer-to-peer lending market. I started with a few hundred bucks to learn the ropes, and now I’ve invested a large amount of money with the investments put on automation.

My personal average return with Prosper.com is just above 14% (not bad ehh?). Now that I understand the market, and feel more comfortable investing more money in this industry, I also have an account with LendingClub.com.

Despite who you decide to begin with, the time to start is NOW! Years down the road you will wish you had started setting aside money to build a great stream of passive income! With my lending portfolio, I now get a decent size amount of money deposited into my account almost daily with all the different loans I have invested in, creating passive income for me and my family!

==> Click here to open an account with Prosper.com

==> Click here to open an account with LendingClub.com

Have you invested in peer-to-peer lending? What do you like/dislike about your chosen platform?  Post your comments below!

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4 Replies to “Invest in peer to peer lending – Prosper vs. Lending Club

  1. Hi Cameron,
    What a great review! I have to admit I have never heard of peer to peer lending so your post really opened my eyes. Looking at the reviews of Lendingclub and Prosper they both seem to be pretty solid companies with their own distinct advantages and disadvantages. To be honest I am going to check them both out and see if it’s something I can get into. I read how you started in the peer to peer lending space and am going to follow your lead – thanks again! Mat A.

  2. I heard that you need to meet a certain income threshold in order to invest with prosper, is that still a requirement? Also, what are the recourses that an investor has in the worst case scenario of a borrower defaulting? I know that a bank can at least seize assets. Do we have that same recourse or would we just be sunk?

    1. Those are great questions, Jessie.  As far as the income is concerned, I am not aware of any income threshold required to invest, however if you borrow money through Prosper that would make more sense.  From Prosper’s standpoint, there isn’t any risk in someone that makes $20k per year and wants to invest $25, versus someone that makes $100k + per year and wants to invest $25.

      Regarding your question about someone defaulting, that is why its important to work with a well trusted company who has a great track record.  In the return on investment planning, prosper assumes that some loans will default or be sent to collections.  When calculating the possible returns you could get, they consider and assume that some of the loans you invest in will default, and this is calculated in your overall return on investment. 

      Prosper, like a bank, does anything they can to receive any money from a defaulted loan.  They may sell the loan to a collections agency, or take the assets if it is a secured loan.  Prosper markets themselves with an average borrower credit score of 700+ which also reduces risk for an investor, knowing the borrowers are well inspected and vetted.

      Me personally, I’ve invested quite a bit of money and have about 30+ loans, and only 1 of those has a late payment right now as of this response.  My overall return as of this response is just over 15%.

      I hope that helps answer your questions, great questions!  Thanks for reading. Reach out for any further clarification or questions.

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