If you’re in the market for a personal loan, you’ve likely come across a variety of lending structures, some traditional, like banks and credit unions and others less so. Included in the growing list of alternative lending options are peer-to-peer (P2P) loans, which are built on a lending agreement between an individual (borrower) and an investor (individual or business).
LendingClub and Prosper represent two of the more widely known P2P lenders, and both are representative of what P2Ps can offer borrowers, including lower interest rates, an easy application process, and a quick decision. Additionally, both offer potential customers the opportunity to view their rate eligibility through a soft inquiry, a real perk for those who are shopping around.
To get a better picture of what these two P2Ps can offer, let’s take a quick look at each.
LendingClub vs. Prosper: Comparison
|Rates (APR)||6.95% – 35.89%||6.95% – 35.99%|
|Loan Terms||3 – 5 years||3 or 5 years|
|Loan Amounts||$1,000 – $40,000||$2,000 – $40,000|
|Fees||Origination fee: 1% – 6%|
Prepayment penalty: None
|Origination fee: 2.4% – 5%|
Prepayment penalty: None
|Compare rates from multiple personal loan lenders|
LendingClub Personal Loans
LendingClub offers a quick application process that can be completed in minutes, and if you’re approved, you will have the opportunity to select the best offer for you. Once the loan process is complete, you can expect the money in your bank account within a few days, typically a week or less.
Applicants must have a Social Security number, an open and active bank account, a steady source of income, and a debt-to-income ratio that does not exceed 30 percent.
- APR: 6.95% to 35.89%
- Terms: 36 to 60 months
- Minimum Credit Score: 640
- Origination fee between 1% and 6%
- Limits: Up to $40,000
The Benefits of LendingClub
Overall, LendingClub is credited with offering competitive interest rates, which often lead to savings over the course of the loan. That’s a plus for most U.S. residents since LendingClub offers borrowing services in all states except Iowa.
In addition to low rates for qualified borrowers, many customer reviews speak specifically of LendingClub’s transparency as well as its easy-to-use interface, which offers borrowers quick and efficient access to loan and payment information.
The Downsides of LendingClub
Though LendingClub has plenty of positive reviews, one of the biggest complaints is its strict approval process. With a required minimum credit score of 640, it isn’t much higher than for competitors, but its average borrower does have a score of 700 and a 12 percent debt-to-income ratio (excluding mortgage). The notion of strict requirements is further backed on the LendingClub blog, which states that over 80 percent of applicants do not meet the criteria. That likely says something about the company’s internal requirements.
Adding to their seemingly strict approval process is their debt-to-income ratio cutoffs (30 percent for individual applicants). For that reason, applicants with poor credit, high debt, or low income are less likely to have their application approved.
Prosper Personal Loans
Much like LendingClub, Prosper’s application process is fairly quick, and your lowest eligible rates and a list of offers will be provided within minutes of submitting the application. Once you select the offer that fits your needs, the funds will be sent to your account within a few business days.
To determine eligibility, Prosper factors in your credit score and current income. In addition to those requirements, applicants must have a Social Security number, an open and active bank account, a steady source of income, and a debt-to-income ratio that does not exceed 50 percent.
- APR: 6.95% to 35.99%
- Terms: 36 or 60 months
- Minimum Credit Score: 640
- Origination fee between 1% and 5%
- Limits: $2,000 – $35,000
The Benefits of Prosper
One of the most attractive aspects of Prosper is that once a borrower pays off a loan through Prosper, they may be able to qualify for reduced interest should they choose to apply for future loan through Prosper.
The Downsides to Prosper
Though there aren’t any overwhelming red flags or downsides that are specific to Prosper, some customers have reported that the rates are higher than those of LendingClub, even if only by a few points. However, even a small increase can lead to a significant increase in overall cost.
Additionally, some consumers may find their payment schedule to lack the flexibility of other lenders, meaning it’s difficult to adjust it should the ebb and flow of your finances call for an alternative payment date.
Prosper is not currently available in Iowa or West Virginia, making LendingClub the clear contender in the latter state.
LendingClub vs. Prosper: Which Should You Choose?
If you have reasonably good credit, a well-paying job, and a low debt-to-income ratio, you may find that LendingClub and Prosper both represent viable options for securing a personal loan. While both require applicants to have, at the very least, average credit, some may find it easier to secure a loan with Prosper. On the other hand, when it comes to rates, LendingClub may offer a more cost-effective solution.
That said, borrowers, particularly those with good credit, should also consider other personal lending options, including their bank as well as online lenders like SoFi, to make sure that they are getting the best rate for their current credit and financial standings
Either way, the great thing about LendingClub and Prosper is that each offer a rate eligibility quote without a hard inquiry, meaning you can review your options and make an educated decision before you sign on the dotted line.
Author: Jeff Gitlen
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