Peer to peer lending services have been growing in popularity. Peer to peer lending was developed as a method for avoiding larger financial institutions for borrowers looking for a loan. For investors willing to front the funds necessary to cover these loans, interest is earned on the loan repayments.
Peer to peer lending sites are still up and coming but there are currently two companies that are very competitive in the P2P industry. Those companies are Prosper and Lending Club. There are notable differences between each site and comparisons to make before choosing which service makes more sense for you.
Understanding the Lending Sites
Lending Club has developed into the largest peer to peer lending site in the country. Several million dollars in loans have been facilitated between investors and borrowers each month.
Prosper.com offer similar lending practices, also orchestrating millions of dollars in loans each month. Prosper.com is currently second behind Lending Club for peer to peer lending services.
Both Prosper and Lending Club offer opportunities for borrowers to secure loans without having to go through traditional lenders for approval. Loan terms and processes are more flexible through P2P lending sites than through larger banking institutions. For the investor, there is opportunity to offer diversification to existing portfolios in addition to traditional stocks and bonds. As an investor, lending funds to borrowers results in a relatively high return. The loan process is more simplistic than traditional lenders and low interest rates are available on most loan terms.
Borrower Benefits
Borrowers soliciting loans from peer to peer lending companies have several benefits with both Lending Club and Prosper. Currently Lending Club offers loans ranging between $1000 and $35,000 for one, three or five year terms with variable interest rates based on borrower’s credit history. Prosper.com offers the same loan lengths for amounts ranging from $2000 to $25,000. Prosper’s interest rates are shown to be slightly lower than Lending Club.
Eligibility requirements for loans with Lending Club require higher credit scores than Prosper services. Borrowers will receive a company grade based on their credit score. Investors are able to see the credit standing of each loan requester.
Investor Benefits
Prosper.com is said to have more complicated loan funding processes than Lending Club. First, investors must provide Prosper with upfront personal information including identification proof as well as an immediate credit check. There is a waiting time between the transfer of investor funds into the account initially and when the investor can choose funding opportunities. With Lending Club, there is no wait time. Investors can get started right away. Lending Club has a reputation for their processes to be smooth and easy to understand.
For investors, Prosper offers higher rates of return on loans but risks are higher. Prosper.com has a track record of loan defaults around 20%. Lending Club has considerably less default rates, standing at 3%.