What is peer-to-peer lending? In a nutshell, peer-to-peer lending is a bank without the bank. Individuals like you and I make loans to others (or get loans from others) directly through the network. Think GoFundMe, except with more rules, and investors get a better return than just feeling good about themselves.

One person may get a $5,000 loan from 100 investors who each front $50. As the borrower pays back the loan, each investor gets their principal plus interest back and the social lending network takes a small cut of the interest for acting as the intermediary and servicing the loan (billing the borrower and distributing payments to investors).

The only two social lending networks that have really made a name for themselves are Prosper and LendingClub. We’ve done reviews on both of them in the past, and both hold their own. But, lets pit them against each other and see which one comes out on top, and which one may work best for you.

Those looking for a loan can borrow up to $40,000 for a fixed term of three or five years with LendingClub. Investors can earn average returns between five and seven percent.

While all this seems well and good, LendingClub borrows must meet very specific requirements. The average borrower looks like this:

  • 699 FICO score
  • 17.7 percent debt-to-income ratio (excluding mortgage)
  • 16.2 years of credit history
  • $73,945 personal income (top 10 percent of US population)
  • Average loan size: $14,553

While this is the average borrower, and there are people who fall on the opposite ends of this scale, not just anyone can get a LendingClub loan. This makes sense, investors want to know their money is going to someone who can actually pay them back.

But what about investors? Here’s David’s review as a LendingClub investor of five years. In short, investors do see a decent profit, but it takes a little bit of skill to make the most as an investor (and that’s not just true for peer-to-peer lending).

Check your rate from LendingClub now

Prosper

Now on to Prosper. You can take a loan out with Prosper for anywhere between $2,000 and $40,000.

Interest rates for Prosper and LendingClub are nearly identical.

Just like LendingClub, not just anyone can request a Prosper loan. The average Prosper borrower has:

  • a 710 credit score
  • an $87,801 average annual income

Prosper has a few less restrictions for borrowers, but they still require good financial standing. Again, this shouldn’t be a surprise. Lenders want to know they’ll get paid back.

Prosper (and LendingClub) requires a $25 minimum investment for investors. You’ll likely want to invest a little more if you’d like to see a significant return.

Payments of principal and interest are due for the borrower each month, so investors also receive payment each month.

Check your rate from Prosper now

Which one is for you?

The difference is in the details. While both options are great, Prosper appears safer for investors, while LendingClub seems better for borrowers. Reviews do site that LendingClub tends to offer lower rates, but that varies greatly based on personal finance details.

One big thing to note is that with Prosper, if you live in Maine, North Dakota, or Pennsylvania you cannot get a loan through Prosper. And neither offers loans in Iowa.

Summary

Social lending provides great alternatives to both regular bank loans and credit cards for borrowers and high yield savings accounts and stocks for investors.

While there are a few differences between LendingClub and Prosper, either one is a great option for borrowers and lenders alike.

Lending Club Disclaimer:

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage and history. The APR ranges from 6.95% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. *The origination fee ranges from 1% to 6%; the average origination fee is  5.2% (as of  12/5/18 YTD).* There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.

Read more:

  • How To Apply For A Personal Loan From Lending Club or Prosper
  • Pre-qualify for a Personal Loan: Check Your Rate Without Affecting Your Credit