Invest In Prosper Or Lending Club

Tips For Investing With Prosper

Any type of investing is a learning process, and Im happy that I have a much better understanding of how P2P lending works now that Ive actually done it for a couple years. Here are some tips from my experience investing with Prosper.

1) Check if youre eligible first. Your eligibility to be an investor depends on your state of residence, and sometimes your income too. Not all states are created equal. Further details below.

2) Ease your way into it. If youre a cautious, low risk investor like me, and arent sure if P2P lending is right for you, start off with AA and A rated notes to get comfortable with the process. Youll still make great returns and can diversify into lower rated notes over time.

3) Dont overlook your notification settings. I made the mistake of having too many email notification settings turned off, so I didnt realize when notes Id invested in expired or were paid off in full. So, I had cash just sitting in my account for months that I should have immediately redeployed.

4) Setup recurring transfers to fund your account. I didnt realize until recently that Prosper has a feature that lets you automatically deposit funds into your account on a recurring basis. If you have the cash flow, automating is a great way to go.

Lendingclub Vs Prosper: Whats Different

*LendingClub doesnt outwardly state these minimum requirements, but theyve been widely reported. On its website, LendingClub simply says it will review your credit reports, credit score and other information that predicts the likelihood that youll make on-time payments until your loan is fully repaid.

Even though the minimum credit scores are similar, in my experience, LendingClub is a little more flexible about credit requirements overall, Hogue said. On the other hand, though, Prosper accepts borrowers with a higher debt-to-income ratio.

Hogue recommended getting a rate quote from both LendingClub and Prosper to compare rates and terms. Since both companies use soft credit pulls to determine your rate, you dont have to worry about it negatively impacting your credit as you comparison shop.

Whats The Minimum Amount You Need To Get Started Investing

Were going to talk only about investing with Prosper and Lending Club simply because they are the two biggest peer-to-peer lending companies. At both Prosper and Lending Club, the minimum investment to get started in P2P lending is just $25, and you are required to invest a minimum of $25 into each loan you want in your investment portfolio. Both companies charge a one percent annual fee to investors.

Both Lending Club and Prosper allow you to invest via a traditional taxable investment account or via an IRA tax-deferred investment account.

The Securities and Exchange Commission also has some minimum investor standards for P2P lending. They include in part:

• A minimum $70,000 gross annual income , as well as a net worth minimum of $70,000.
• You must live in an approved state. Currently all states are approved for P2P investing except Arizona, New Mexico, North Carolina, Ohio and Pennsylvania.
• Net worth exception: If your net worth is at least $250,000, there is no minimum annual income requirement.

The individual P2P lending sites will have all of the qualification information you need to get started as an investor. Starting investing in P2P companies is as simple as depositing your opening balance and beginning to assess potential borrowers.

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How To Invest Using Peer

One of the more popular ways to invest these day is through peer-to-peer lending.

Many borrowers are avoiding traditional bank loans and turning to peer-to-peer lending for their financial needs. Likewise, many investors are using peer-to-peer lending as a part of a diverse investment portfolio.

But how does it work? And is it worth the risks?

P2p Lending Monthly Statements

Prosper.com will also send you a monthly statement showing you how much interest you earned that month. This is extremely helpful to gauge your passive income per month potential.

My last statement was for December 2020, and the interest was nearly $400. This amount will vary depending on how many notes default that month. But Im pretty happy with nearly $400 for only an hour of work or less for that month!

The reason for the high cash balance is I dumped an extra $3,000 into Prosper.com for that month and it hadnt been automated to new loans yet.

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How Has Prosper Changed

In July 2009, Prosper understood the problems with their service and completely changed their underwriting process. Do keep this in mind when reading older reviews of Prosper. I’m reviewing their service only from that point forward.

The results are looking pretty good. From the data, the returns with Prosper from this period forward are in line with the returns seen with Lending Club. This puts them in a much similar risk category to Lending Club’s notes. All of this makes me much more confident in trying out Prosper this time around.

Can You Lose Money In P2p Lending

Yes, you can lose money. Like any loan, the person who got the loan could get sick, hurt, have bad luck, be irresponsible, or just plain decide not to pay anymore. If this happens, it is called a default.

Prosper.com will try and get that person into collections, but more than likely, the only money youll get is what has already been paid in interest. The rest would be a loss to you.

Fortunately, at this time, far more people are making their monthly payments than are defaulting, but who knows, this could change in the future.

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So Whats A Good Alternative

In a battle between old and outdated models for investing like Prosper vs. LendingClub, sometimes there are no real winners.

If youre not happy with the risk involved with unsecured peer-to-peer loans, theres always the option of secured loans. Or loans that are backed by a tangible asset.

Our company, Constant, facilitates cryptocurrency-backed p2p loans. Borrowers put up the dollar equivalent of 150% of the loan amount to receive the loan. Borrowers never need to worry about their credit score. And investors dont need to worry about defaults as theres more than enough collateral backing the loan.

In terms of returns, you can earn a solid 4% APY with a Flex account. This gives you consistent returns from a lending pool with anytime withdrawals and no fees. Alternatively, with our crypto-backed option, you can earn between 7% and 7.5% interest guaranteed. This depends on the term of the loan .

If youre looking for a healthy balance between risk and reward, it makes sense to check us out. You can get started with as little as $50 over just 30 days.

Loan Terms And Pricing

You can borrow any amount up to $40,000, and while the loans are typically used for refinancing debt or debt consolidation, you can also borrow for other purposes, such as unsecured home improvement loans. Current terms are fixed-rate loans of either 36 months or 60 months.

Exactly how much you will pay in interest rates and fees depends upon the type of loan that you are looking for, as well as your loan grade.

Personal Loans

As noted above, your interest rate will be based on your credit grade, which can run between a high of A1 and a low of G5. A1 has a minimum APR of 10.86% APR. The highest interest rate currently possible is 35.89%.

Lending Club does not have an application fee, but it does have an origination fee, which is typical for P2P lenders. Lending Clubs origination fee ranges, so review the current terms to see if its right for you. The fee is deducted from the loan proceeds, therefore it will only be charged if you actually take the loan.

Lending Club does not charge a prepayment penalty on any of its loans.

Business Loans

These loans carry an entirely different pricing structure. Depending upon your credit grade and the financial strength of your business, interest rates on business loans range between 9.77% APR and 35.89% APR.

Business loans and lines of credit also require an origination fee. This ranges between 3.49% and 7.99% of the loan amount. And once again, there are no prepayment penalties on business loans and lines of credit.

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Some Background On Filtering

It can feel a little overwhelming when you first start investing. You wonder how you should go about choosing loans. When I first started I did it kind of randomly with very little strategy. Then, for a while I let Lending Club choose the loans for me. Finally, I decided to get serious. What did I do? I spent dozens of hours analyzing the loan history of both Lending Club and Prosper.

The original goto site for this kind of analysis was Lendstats. Today, Nickel Steamroller is the leader and that is the place where investors should go to analyze the p2p lending loan history. Prosper and Lending Club make their entire history available for public analysis and Nickel Steamroller has produced an excellent tool to easily inquire on this history. You can get very detailed with this analysis with dozens of data fields to choose from. I encourage all serious investors to spend some time studying to see what has produced above average returns in the past.

Before I go any further I need to stress this point. My investment decisions are based on historical analysis. There is no guarantee that the loans will perform in a similar way going forward. And if the economy tanks as it did in 2008-09 then it is likely that future returns will look quite different.

If you want to compare my filters today to previous years here are links to my 2012 and 2013 strategies.

Shop Around To Find The Best Personal Loan

Your best bet might be to pre-qualify with both LendingClub and Prosper and compare rates on any offers you get. The lenders are similar businesses but have unique grading systems, so one might offer you a better APR than the other.

NerdWallet recommends comparing loans to find the best rate for you. Click the button below to pre-qualify and receive a personalized rate from multiple lenders on NerdWallet.

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What To Expect When Borrowing From A Peer

With most peer-to-peer lending sites, you’re required to fill out an online loan application, but your application won’t negatively impact your credit score like it does when you apply for typical loans . As with traditional loans, your interest rate is based on your credit score, usage and history, as well as your loan amount and terms. Your loan request receives a grade, depending on your risk factor as a borrower — these grades are also used for investors to determine how risky they want their investment to be . Generally loans range from $1,000 to $35,000, but this depends on the lending site, as does the grading process, interest rate, and terms. See our comparison chart for the details.

Lending Club Loan Types And Loan Grading

Loan terms are either 36 months or 60 months and are fixed-rate. More than 80% of the Lending Club loans are taken to refinance existing loans and credit card balances. Similar to other peer-to-peer loans, borrowers are evaluated and loans are priced based on credit and credit scores, debt-to-income ratios , the length of your credit history, and your recent credit activity.

Each loan is assigned a loan grade, ranging from A to G . The higher the grade, the lower the rate.

Within each letter grade, Lending Club also assigns a numerical rank of between 1 and 5 . These numeric sub-grades adjust for other factors, such as loan size and loan term. For example, a loan amount of $5,000 would be seen as low risk, and actually result in an improvement in the sub-grade. By contrast, the maximum loan of $35,000 is a higher risk, and could turn a B1 grade into a B4 or B5 grade, resulting in a slightly higher interest rate.

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Investing In Lending Club And Prosper

Americans are cleaning up their debt, according to Federal Reserve data. But they still have a long way to go. Aside from the more than $1 trillion of student-loan debt outstanding, theres still more than $800 billion in credit-card debt borrowed at terms that often exceed 20 percent annually. Meanwhile, the same banks that see fit to charge 20 percent or more for revolving debt continue to pay savers 1 percent or perhaps 2 percent on their deposits.

Though that may sound like highway robbery, the 18-percentage-point spread has created a business opportunity: marketplaces that bring together debtors and lenders. Not all of those debtors have poor credit far from it. In fact, at least some of them are considered relatively good credit risks with reliable income, contributing to the growth in peer-to-peer lending and making it a new force in the financial system.

The two largest peer-to-peer lenders, Lending Club and Prosper, both with headquarters in San Francisco and Internet-based, have grown from curiosities in 2007 to an online lending duopoly that facilitated more than $2 billion in loans in 2013.

Heres how peer-to-peer lending works: After opening an account online, the investor browses hundreds of borrowers requests for a loan. The requests are accompanied by a brief statement about how the borrower intends to use the loan. In the majority of cases, the reason is the same: The loans are intended for debt consolidation.

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Profiting From The Spread

Heres how peer-to-peer lending works: After opening an account online, the investor browses hundreds of borrowers requests for a loan. The requests are accompanied by a brief statement about how the borrower intends to use the loan. In the majority of cases, the reason is the same: The loans are intended for debt consolidation.

The more important piece of information for the investor is the credit rating Lending Club and Prosper assign to the loan. That helps determine the potential return for the investor, which can vary widely. At Lending Club, recent annual returns ranged from 6 to 13 percent.

When it comes to making a loan, it is not an all-or-nothing deal. If a single borrower is seeking $16,000 in loans, you can lend any portion of that amount in increments as low as $25. For the investor, making smaller loans to multiple borrowers instead of one big loan to a single individual is a way to reduce risk by diversifying investments among borrowers.

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What Are The Benefits Of Peer To Peer Lending Sites For Investors

As an investor, you sometimes have the choice to select the interest rates that you would like to earn. Much like any financial investment, investors can go for conservative or risky investments based on what they feel comfortable with.

In addition, this is a great way to diversify your portfolio with loans that carry minimal risks for bad things like defaulting, late payment, or bankruptcy.

A diverse portfolio is always better than becoming too reliant on one source.

Particularly if youre a beginner, this is one of the best ways to start learning how to invest since the risk is much lower compared to choosing stocks or other traditional methods.

Lendingclub Vs Prosper: Shop For Your Best Personal Loan

Do your research to see what works best for your situation. Hogue suggested applying on both lender websites to compare rates.

Its not just about LendingClub versus Prosper when it comes to personal loans. P2P lending can be a great way to find borrowing opportunities not offered by banks, but its not the only option. Hogue recommended getting quotes from other personal loan lenders, as well as from P2P lenders.

Just like anything else, youre going to get a better deal when you shop around, said Hogue. Check out Prosper, LendingClub and more traditional lenders to see where you get the lowest rate and the terms that best fit your situation.

You might also compare SoFi vs. LendingClub, for example.

Note: Student Loan Hero has independently collected the above information related to rates and terms for unsecured personal loans. None of the companies mentioned have provided or reviewed the information shared in this review.

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Prosper Might Be A Better Option If You:

• Carry substantial debt.

• Have a high income and credit score.

Prosper is a peer-to-peer lending platform offering personal loans to fair or good-credit borrowers.

How to qualify: Prospers minimum credit score is 600, but the borrower average is 722. The company doesnt have a minimum income requirement average borrower income is $106,000.

» MORE: Personal loans for good credit

Prosper accepts applications from borrowers who have significant existing debt, allowing debt-to-income ratios up to 50% . It requires a minimum credit history of two years.

Approval and funding time: Prospers timeline from loan approval to funding typically takes five to eight days, potentially a few days longer than LendingClubs.

Costs: Prospers APR range is about 8% to 36% and includes an origination fee from about 2% to 5%. As with LendingClub, the fee is deducted from your loan amount before you receive the money.

Prosper, like LendingClub, doesnt charge anything to make extra payments or pay your loan off early. It has the same late payment fee of 5% of the amount due or $15, whichever is greater, after a 15-day grace period.

Best For Borrowers With Limited Credit History: Upstart

• Starting interest rate: 3.50%

Upstart considers more factors than just your credit score so its ideal for borrowers with a limited credit history.

• Education or job history, not just credit, considered

• Higher maximum loan amount than many other P2P lenders

• Fast funding

• High maximum APR of 35.99%

• Origination fee as high as 8%

• No co-signers allowed

Upstart, founded in 2012 by a group of former Google employees, has originated more than $7.8 billion in consumer loans. With its mantra, You are more than your credit score, the company says its underwriting software can help identify future prime borrowers based, in part, on education and employment history, even if those applicants have sketchy or limited credit at the moment. Personal loan borrowers who qualify may be able to access $1,000 to $50,000 in funding.

Other important information:

Read the full review: Upstart Personal Loans

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