Lending Club vs Prosper – Round 1

by AB@AspiringBlogger.com

Update – It looks like Mr. Money Mustache and I are sharing brainwaves, as he decided to post about peer-to-peer lending on the same day as me. MMM has decided to invest his money in LendingClub with no mention of Prosper. As Lending Club seems to be the market leader, this is probably a decent strategy. I look forward to seeing how his strategy pays off. Stay tuned to AspiringBlogger.com for Round 2!


One piece of my strategy to become financially independent is to produce more passive income. One of the methods I’m going to use is  investing in peer-to-peer lending. Right now I have over $90k sitting in savings earning less than 1% a year in interest. I’m hoping that with some good research and a lot of luck I can get close to 10%. I’m planning on investing $2500 with either LendingClub.com or Prosper.com once I decide who has the best platform and which site will give me the best chance at maximizing my returns. I’m just focusing on these two platforms as they are the giants in this industry and have the majority of the traffic/borrowers/etc.

P2P Background

Peer-to-peer lending has been around forever. I’m sure most of you have leant money to a friend with some degree of expectation that you will be paid back. Sites like LendingClub.com and Prosper.com have just recently started to formalize this process. In doing so, they have allowed many more people to be potential lenders/investors, so you’re no longer limited to just your circle of friends. With the good (more potential investors) also comes the bad – you may not know who you are lending money to. Because of that, you don’t know how good they are at paying back borrowed money and they have less incentive to pay you back as you don’t know each other. To minimize the chance of default, both platforms run credit checks, verify employment and income, etc. I’m sure it’s still possible for a borrower to fool the system, but I think the likelihood of that is low.

Interest Rates

Each of these sites has their own proprietary grading system (Prosper goes from AA as the best to HR as the worst, LendingClub goes from A to G  with each level having five sub grades) and the borrower’s profile will determine where they fit on each scale and the interest rate they will qualify for. With each of these sites they grade the borrower based on their credit score, credit history, income, DTI (debt-to-income ratio), loan amount, loan purpose, and other factors to determine the interest rate of their loan. Without filling out an application for a loan, it’s impossible to tell which site has the best rates for a borrower.

As far as who has the potential to generate the best rates/returns for me? Well, Prosper gives you some information with caveats and only goes back to 7/15/2009 with its data. LendingClub, on the other hand, gives you data for each credit grade since inception – which is a lot more encouraging for an investor. Prosper advertises a “seasoned return” of 10.02% while LendingClub doesn’t provide an average rate an investor could expect.

Next Steps

Round 2 will involve deciding which site to invest my $2500 with (and why), the types of loans to invest in (and which to avoid and why), and the best strategy for generating the highest potential returns. If you have any experience with peer-to-peer lending – either as a borrower or a lender, please let me know – I’d be interested to hear your viewpoint on it! Make sure to check back for Round 2.


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