Lending Club and Prosper are giants of marketplace lending. Both have been operating long enough to have established themselves as leading destinations for both borrowers and investors. They share a common framework — bringing together borrowers and investors in an online environment. Both say they can save borrowers money when compared to traditional banks and offer excellent returns to investors. But when it comes to Lending club vs Prosper, which one is best for you?
Here are some attributes the companies have in common:
- Borrowers can take out loans of up to $35,000 without collateral
- Investors can invest in loan notes for as little as $25
- Both sites have quick and convenient online applications
- The lending sites collect payments every month, pocket their fees and pass on the rest to the investors
- Both lend only to borrowers with at least fair credit histories
- Neither lending site shields investors from the risk of defaults, which can happen even when the borrowers have good credit scores.
Despite all of these similarities, Lending Club and Prosper are not identical. We’ll explore some of the key differences in this article, especially as it pertains to borrowers.
Borrowing from Lending Club
You can borrow money from Lending Club except if you live in Idaho, Iowa, Maine, Nebraska or North Dakota. The loan amounts range from $1,000 to $35,000. The normal term is three years, but five-year loans are also available for amounts above $9,975.
Lending Club will check your credit history before approving you for a loan, but does not necessarily verify your income or employment information. Although it might appear you are borrowing from an independent lender, your loan originates from WebBank of Utah and is sold immediately to Lending Club, which in turn sells notes to investors based on the loans it owns. Once in a while, Lending Club itself invests in member loans.
To borrow from Lending Club, you must first register as a member and:
- must be U.S. citizens or permanent residents
- must be at least 18 years old
- must have valid email accounts
- must satisfy Lending Club’s credit criteria (described below)
- must have U.S. social security numbers; and
- must have an account at a U.S. financial institution with a routing transit number.
Lending Club will verify your identification and bank account information.
To qualify for a loan from Lending Club, you must meet these requirements
- a minimum FICO score of 660
- a debt-to-income ratio (excluding mortgage) below 40 percent
- a minimum credit history of 36 months
- five or fewer inquiries on your recent credit profile in the last six months, and
- at least two current revolving accounts.
Based on your credit information, loan term, loan amount and a proprietary scoring model, you’ll be assigned one of 35 loan grades. You will be assigned a fixed interest rate, ranging from 6.03 percent to 26.06 percent (rates as of December, 2015), based upon your loan grade and estimated default risk. You will also pay an origination fee ranging from 1.11 to 5.00 percent.
You can prepay your loan at any time without penalty. If you are late, you will owe fees may be referred to a third-party collection agency.
Note that business loans and custom program loans (for education or medical expenses) are also available.
Borrowing from Prosper
From an internal viewpoint, the Prosper lending model is quite similar to that of Lending Club, in that it uses WebBank of Utah to originate the loans it buys. Like Lending Club, Prosper then sells notes with a minimum size of $25, backed by the loans it buys from WebBank. The only real difference here is that Prosper first obtains sufficient bids from investors to cover the loan amount before it submits the loan to WebBank.
Prosper uses its owns rating system to assign fixed interest rates to the loans it approves.
Key differences between Propser and Lending Club:
- The minimum loan amount is $2,000 instead of $1,000 (Both have the same maximum loan amount of $35,000).
- The minimum FICO score of 640 instead of 660
- The maximum debt-to-income ratio is 50 percent rather than 40 percent
- There is no minimum credit history, rather than Lending Club’s requirement of 36 months
- Borrower cannot have filed for bankruptcy in the last 12 months
- Borrower must have an income greater than $0
- Borrower can have six or fewer inquiries on recent credit profile in the last six months, rather than five or fewer
- Borrower must have at least three current revolving accounts rather than two
- The maximum amount borrowed is lower for borrower with low Proper ratings, with the three lowest ratings limited to $30,000, $15,000 and $7,500
- As of December, 2015, interest rates available from Proper ranged from 5.99 to 36.00 percent, as opposed to 6.03 to 26.06 percent on Lending Club
- There appear to be no states excluded for Prosper borrowers
- Prosper loans cannot be used to pay for college costs
Borrower can have two Prosper loans at the same time subject to these limitations:
- For credit scores 640 to 719, nine months must pass before second loan and there must be nine consecutive months without 31+ days past due on first loan
- For credit scores 720 or higher, six months must pass before second loan and there must be six consecutive months without 31+ days past due on first loan
The bottom line
Although the two lending platforms are quite similar, each has certain advantages.
You would prefer Lending Club if you want a loan below $2,000, because its minimum loan size is $1,000.
You would prefer Lending Club if your credit score was 660 or slightly higher, because they have a lower maximum interest rate.
Only Prosper will give you a loan if your credit score is between 640 and 659.
If you live in in Idaho, Iowa, Maine, Nebraska or North Dakota, your choice is limited to Prosper.
If you have an excellent credit rating and want a large loan, you would prefer Prosper, since their lowest interest rate is 0.03 percentage points lower than Lending Club’s.
Prosper acquired American Health Care Lending in January 2015. Today, the renamed Prosper Health Care Lending provides special programs for medical purposes, and appears to be the leading online financing platform for healthcare providers.
If you have debt-to-income ratio between 40 and 50 percent, have six recent credit inquiries, or have a short credit history, Prosper would be a better bet.
If you need a $35,000 loan but have minimally acceptable credit, you’ll have better luck with Lending Club, because Prosper limits the maximum amount to as low as $7,500.
Editor’s note: This post has been updated to note that Prosper offers loans for medical purposes through Prosper Health Care Lending.
Eric Bank writes about small business, personal finance and science. He holds a master’s of science in finance from DePaul University and an MBA from New York University.