A common struggle borrowers face when applying for a peer to peer loan is choosing between the two major companies: Lending Club vs Prosper. From the outside, both look very similar. Both offer great low interest rates on loans up to $35,000. However, there are some key differences between the two that borrowers should be aware of.
While we have previously covered this comparison for investors (see: Lending Club vs Prosper for investors), today we will compare the two platforms for borrowers, showing four ways they are the same and four ways they are different.
4 Ways Lending Club & Prosper Are the Same for Borrowers
#1. Personal Loans up to $35,000
Both Lending Club and Prosper offer the same basic service: the ability to apply for a loan between $2,000 and $35,000. Both the platforms ask you some basic questions about your age, employment, and income. Both check your credit score to see how well you have paid your bills. Finally, if approved, both open your application up for investment from lenders. When funded (and most loans do get funded), the money is transferred to your bank account. You then pay it back with interest over the next three years (or five years).
#2. Better Applications Can Get Bigger Loans at Lower Rates
Both Lending Club and Prosper have ways to improve your result when applying for a loan. Here are three ways to get a lower rate or access to a bigger loan:
- Have a good credit score. Borrowers with a good credit score get lower interest rates and can apply for bigger loans. Similarly, many negative marks on your history can get your application declined, or only approved for a smaller loan than you might need. Keep updated on your credit report (free credit check here), making sure your history is free from errors.
- Don’t shop around for a loan. Every time you apply for a loan, you get an inquiry, a somewhat negative mark on your credit. The greater the number of these marks, the higher your interest rate will be. This is because people with many recent inquiries have often been denied for loans elsewhere, and are more likely to skip out on repayment.
- Don’t ask for too much money. The bigger the loan you take out, the more interest you pay on it. Also, if you ask for a 5-year loan (versus a 3-year), you will pay extra for that as well. Only apply for as much as you need, and try to pay it off in three years. This way you will be offered the lowest rate possible.
#3. Borrowers Usually Pay a 5% Closing Fee
Both Lending Club and Prosper charge borrowers a fee to take out a loan (Lending Club calls this an origination fee; Prosper calls it a closing fee). This fee is different for different borrowers, but for most loans the fee is 5% of the loan amount. 80% of peer to peer loans pay this 5 percent closing fee, though the best 20% of borrowers pay a smaller fee: between 1-4% of the loan amount.
You should consider this fee when you apply for a loan, since 5% of your loan will be lost to to it. For example, say you needed $10,000 to pay off credit card debt. You should actually ask for $10,500 since $500 (5% of $10,000) could be taken from your loan by Lending Club or Prosper. The remainder ($10,000) would then be deposited in your bank account.
#4. Loans Are Funded by Real People
One of the amazing things about peer to peer loans is that they are not funded by banks. Instead, people all over the United States are funding these loans. In this way, Lending Club and Prosper are the same, helping organize this funding as it moves from their bank accounts to yours. When you pay your loan back over time, your payments then return to these lenders in whatever state they live.
4 Ways Lending Club & Prosper Are Different for Borrowers
#1. Prosper May Have Lower Interest Rates
This may change in the future, but for now it seems true. If you apply for a loan on both platforms, Prosper may offer you a lower interest rate than Lending Club. To demonstrate, I checked my own rate on both platforms today.
For a $4,950 loan, Lending Club offered me a rate of 9.71%:
For the same loan, Prosper offered me a rate of 8.69%:
This difference of 1.02% is important to note: for the Lending Club loan, this would mean I pay $775 in interest over three years. For a Prosper loan, I would pay $691 in interest. This is a savings of $84 for the exact same loan, a difference that would be even more dramatic if the loan were larger. It is important to point out how my experience between the two platforms may be different than yours (see PeerLender; he gets consistently better rates @ Lending Club). Every application is different.
#2. Prosper Approves More Loans
While Lending Club may be the larger company, they are harder to get approval for a loan than Prosper. The minimum FICO credit score for loans on Lending Club is 660, while on Prosper it is 640. This means that, for borrowers who have less than perfect credit, Prosper can be a small break from always being declined. Of course, if you have a lower credit score, you will pay a higher interest rate than most borrowers.
#3. Lending Club Charges Lower Closing Fees
Like we mentioned earlier, both the platforms generally take 5% of the loan as a fee (called an origination fee on Lending Club and a closing fee on Prosper). However, the platforms offer slightly different versions of this fee, especially for premium borrowers. Lending Club offers their best quality A-grade borrowers a fee as low as 1% while Prosper’s is 1.95% (basically 2%). So if you have excellent credit, you might go with Lending Club. Even this tiny 1% difference can mean hundreds of dollars in savings, especially for big loans.
#4. Prosper Has More Eligible States for Borrowers
As mentioned in the recent post Which States are Open to Lending Club & Prosper?, Prosper has more states available to borrowers than Lending Club. If you live in Idaho, Mississippi, or Nebraska, you cannot get a loan through Lending Club, but you can get a loan through Prosper.
Verdict: Both Lending Club & Prosper Are Great
In my opinion, both Lending Club and Prosper are great places to get a peer to peer loan. However, each platform offers different benefits to different borrowers.
- Do you have great credit history? You might want to check out Lending Club. They can offer you a lower closing fee than Prosper.
- Concerned you may not be approved for a loan? You may prefer Prosper. They are less strict than Lending Club.
- Live in Idaho, Mississippi, or Nebraska? Even though your state is closed to Lending Club, you can still get a loan through Prosper.
You can make this process a whole lot easier by simply taking two minutes to check your rate at both Lending Club and Prosper. After submitting some basic information like your name and yearly income, both Lending Club and Prosper will run a soft credit check (also called a soft pull) that will not hurt your credit score. You then can see the rate both companies would offer you and pick the one you prefer.
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