Lending Club vs. Prosper - Which Is Better In 2024?

By: Cooper Haywood
Last Updated: April 02, 2020
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In working towards the goal of financial independence, many ways exist to earn a return on your money, including 401ks, real estate, or mutual funds. But another great option you may not have heard of involves peer to peer lending. Companies like Lending Club and Prosper are some of the better known entities that specialize in this method of investing, which allows you to act like a bank and lend money to borrowers to earn interest.

Let's take a look at how Prosper and Lending Club compare.

Platform

Lending Club

Prosper

Minimum Deposit$25 per note in $25 increments$25 per note, flexible increments
Fee1% annual loan servicing1% annual loan servicing
Year Founded20072005
Total Loans Funded$26.6 Billion$8.9 Billion
Taxable Accounts
Institutional Accounts
401k Rollover Accounts
IRA Accounts
Roth IRA Accounts
SEP IRA Accounts
Trust Accounts
Not Available In
  • Alaska
  • North Carolina
  • New Mexico
  • Ohio
  • Pennsylvania
  • Alabama
  • Arkansas
  • Arizona
  • Illinois
  • Kansas
  • Kentucky
  • Maryland
  • Maine
  • North Carolina
  • North Dakota
  • New Jersey
  • New Mexico
  • Nevada
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Tennessee
  • Texas
  • Vermont
  • West Virginia
Sign UpCheck out Lending ClubCheck out Prosper


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How Lending Club Works


Lending Club has funded $26,605,550,287 since its inception in 2006. It consistently receives industry praise for their simple yet comprehensive application process.

When you invest the minimum amount of $25, you begin earning money that month from the interest payments. You can split your funds up and lend to hundreds or thousands of notes at a time, giving you much better diversification to limit the loss you would take should a borrower fail to repay their loan.

Lending Club charges a 1% fee to process the loans of the borrowers, which comes off the top for investors. There is also the possibility of a higher fee should the borrower default on their loan, resulting in Lending Club handling the collections process.

Lending Club does a solid job screening applicants; each accepted borrower receives a grade that determines their interest rate based on various risk factors they compile during the application process. You are able to select the grade of applicant, which will impact your potential return - higher risk loans get higher rewards in the form of an increased interest rate at the cost of an increased chance of default.

Lending Club offers several different account types, including options for 401k and IRA rollovers if you would like your investments to be set aside for a tax-advantaged retirement.

Each month, you receive your return on investment in cash back. You can either withdraw your earnings or choose to loan it out to more borrowers to compound your returns, which generally range between 5-7%.

Prosper logo 2935


How Prosper Works


While Lending Club issues each borrower a "grade", Prosper issues them a rating to help you determine the level of risk in loaning to this applicant. This rating system follows a similar structure to Lending Club. The borrowers given an A rating are less likely to default on their loans while those with an E are more likely.

The lower the rating, the riskier the investment, although these loans offer much higher potential returns than the A rated borrowers.

There are many options available for filtering to view different loan requests. Prosper makes it easy to find particular types of loans that you may want to fund.

If you want to find candidates that have used Prosper in the past, this is no problem. You can search for borrowers with a certain debt to income ratio, etc.

This feature is useful and relatively easy to navigate, though it takes some time to complete. Prosper also offers an automated note tool to make it easy to locate the type of borrower you would like to lend to in order to avoid manually filtering.

Prosper offers the same account types as Lending Club, which includes Taxable, Institutional, and 401k rollover as well as Traditional, Roth, and SEP IRAs.

Prosper's borrowers boast an average FICO score of 710, indicating the strength of the quality of loan applicants that they choose to accept.

With a healthy track record of $8,898,550,892 funded in loans since its inception, Prosper continuously shines as one of the largest P2P lending platforms today.


Check out Prosper

Or read our detailed Prosper review here.


Prosper vs Lending Club - Which One is Better?

Deciding which peer to peer lending institution to invest with will ultimately come down to your interests.

Lending Club has established itself as a staple in the peer to peer lending industry; although one year younger than its competitor Prosper, its reputation continues to grow stronger. Lending Club also allows investors from many more states than Prosper.

While Prosper does a great job of offering an investment vehicle that works, some of its features are less impressive than Lending Club. Prosper's website is relatively simple to navigate and understand, but Lending Club's easy-to-use interface makes for a much more enjoyable experience.

However, even with Prosper's one year advantage, Lending Club has managed to facilitate the funding of nearly $20 Billion more to borrowers!

Lending Club is stepping up as the premiere platform for peer to peer lending. Although both of these companies look nearly identical in terms of functionality, Prosper seems to take longer to complete the loan closing process when compared to Lending Club.

On the other hand, Prosper's interest rates are higher, which can help generate higher returns, but those higher interest rates also likely indicate higher risk borrowers that could more likely default.

Based off of the reputations, interfaces, and processes, beginners may want to start with Lending Club as their introduction to P2P lending. With Prosper’s less stringent filtering of applicants, the risk level of this platform may be slightly higher. For this reason, Lending Club would be better for beginners introducing themselves to P2P lending.

If you are experienced with P2P lending and do not need some of the automated tools that Lending Club offers, than Prosper may offer you better returns on your investment, with higher risk.

Both are excellent options in their fields. This form of investing will only continue to grow and will offer excellent ways to reach financial freedom for those who choose to take part.


Check out Prosper

Or read our detailed Prosper review here.

About the Author
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Cooper is a former equity research professional/finance analyst who holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business. He left the investment banking world in 2015 to become a full-time investor. He contributed to InvestmentZen as an financial product analyst from 2016-2017.