A common struggle borrowers face when applying for a peer to peer loan is choosing between the two major companies: Lending Club and 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.
To begin, check your rate with both and see which offers you the lowest rate:
Check your rate at both, go with the lower rate
Won’t affect your credit score.
4 Ways Lending Club & Prosper Are the Same
#1. Simple personal loans with very low interest rates
Both Lending Club and Prosper offer the same basic service: the ability to apply for a loan between $2,000 and $35,000 (Lending Club goes up to $40,000). 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 all loans currently 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 get bigger loans with better 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 get 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 temporary 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 are often shopping around for credit 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% 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 everybody, 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%.
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 $10,526 since $526 (5% of $10,526) could be taken from your loan by Lending Club or Prosper. The remainder ($10,000) would then be deposited in your bank account.
#4. Your loan is 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
#1. Lending Club may have lower rates
This may change in the future, but for now it seems true. If you apply for a loan on both platforms, Lending Club may offer you a lower interest rate than Prosper. To demonstrate, I recently checked my own rate on both websites.
For a 3-year $2,000 loan, Lending Club offered me a rate of 6.49%:
For the same 3-year loan, Prosper offered me a rate of 8.51%:
This difference of 2% is huge. For the Lending Club loan, I would pay $206 in interest over three years. For a Prosper loan, I would pay $272 in interest. This is a savings of $66 for the exact same loan, a difference that would be even more dramatic if the loan were larger (eg: for a $20,000 loan I would save $660!).
It is important to point out how my experience between the two platforms may be different than yours (see PeerLender; he also got consistently better rates @ Lending Club). Every application is different.
#2. Lending Club seems to fund loans faster (2 days vs 3 days)
When I applied for a Lending Club loan, I received my money in two days. I applied on Monday and had money in my bank account on Wednesday. Prosper, on the other hand, deposited cash in my account in three days. In summary, if you need money fast then Lending Club then may be a better option.
#3. Prosper charges lower fees (5% vs. 6%)
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, Prosper usually charges a 5% fee while Lending Club charges a 6% fee. So if you’re taking out a large $30,000 loan, you’ll save $300 (1%) by going with Prosper.
If you have excellent credit, Prosper also offers a fee as low as 0.5% while Lending Club is higher at 1%. If you have great credit, go with Lending Club. Even this tiny 0.5% difference can mean hundreds of dollars in savings for big loans.
#4. Lending Club has more open states (plus joint loans)
As mentioned in the post Which States are Open to Lending Club & Prosper?, Lending Club has more states available to borrowers than Prosper. If you live in Maine or North Dakota, you cannot get a loan through Prosper, but you can get a loan through Lending Club.
Also, Lending Club offers joint loans, so if you want to apply with somebody like your spouse to increase your chances of being approved, Lending Club is your option.
Conclusion: Both Lending Club and Prosper are Great
In my opinion, both Lending Club and Prosper are great places to get a peer to peer loan. That said, each platform offers different benefits to different borrowers.
- Do you have great credit history? You might want to check out Prosper. They can offer you a lower fee than Lending Club.
- Do you need money fast? You may prefer Lending Club. They seem to approve loans quicker than Prosper.
- Live in Maine or North Dakota? Even though your state is closed to Prosper, you can still get a loan through Lending Club.
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 that will not affect your credit score. Then you can see the rate that both companies offer, and pick the lower of the two. Good luck!
Go with whoever gives you the best offer
Won’t hurt your credit score.