This peer lending sites review will help you compare the three largest peer to peer lenders and get the best loan for your needs
Editor’s Note: I’ve updated this peer to peer lending sites review with new rate information and a few links on how to get your loan at the lowest rate possible! Whether you have bad credit or no credit at all, you’ll find a couple of loan options.
After a rocky start at the outset of the financial crisis, peer lending is quickly gaining momentum and replacing traditional bank loans. The biggest lending platforms in the United States originated $2.4 billion in new loans last year, a 175% increase from the $870 originated in 2012.
It took Prosper nearly eight years to originate $1 billion in loans. It took the site just six months this year to originate its second billion in loans!
And why not? Peer lending could not be simpler. Peer-to-peer lending is simply a platform for individuals to request a loan from funding sources outside of banks. Instead of the thousands of banks and credit unions, there are tens of millions of peer lenders to invest in loans.
Lenders are just regular investors like you and me who are willing to assume a portion of the loan. The application process for borrowers is relatively easy and the lending site takes care of all the credit checks and payments.
So what does this mean for borrowers?
By cutting out the middleman of traditional banking, peer lending cuts costs and savings can be passed through to borrowers. This means lower rates for borrowers and a constant flow of loans for investors.
Peer to peer lending is becoming the preferred choice for online loans and debt consolidation. You get the lowest loan rate possible and a loan customized to your needs while regular investors get better returns. It’s a win-win situation.
Best yet, since the P2P loan sites are not chained to the big banks, they can lend money to any borrower they choose. Bad credit borrowers have always been shut out of the financial system but peer lending is changing that with many sites focusing on bad credit loans.
Use this peer lending sites comparison to compare the biggest p2p websites and check out this Ultimate Review of Peer to Peer Online Loan Sites for detail on 20 other peer lending websites for your loan.
Peer Lending Sites Review of Prosper and Lending Club
Lending Club and Prosper are the two biggest peer lending sites in the United States. There are a few smaller p2p websites that provide differing levels of personal or business loans but they have not gained nearly the scale of the two major players. This peer lending sites review will compare the rates, fees and other information for Prosper and Lending Club.
Peer Lending Sites Review: Lending Club
Lending Club came after Prosper but it has also been very successful in issuing loans with more than $5 billion in loans and almost $500 million in interest payments to investors. You can see the type of growth the site is experiencing in the graph below with loan demand more than tripling just in the latest year.
The company issued shares on the New York Stock Exchange in December 2014 and raised nearly $900 million from the stock sale. This money has been put back into the company for growth and Lending Club has started offering business loans.
Lending Club also provides a snapshot of returns over its originated loans though the numbers are calculated a little differently. The table below is calculated from loans issued from the first quarter of 2009 to the second quarter of 2013. The site does not provide a loss rate so I took the difference between the Net Annualized Return and the Adjusted Net Annualized Return, both provided on the site.
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Peer Lending Sites Comparison: Prosper
Prosper was the first peer lending platform launched and offers some of the best rates for people with poor credit. Prosper has issued more than $2 billion in loans to more than two million members. Lately, the site has been issuing more than $100 million in loans every month. In fact, the site is so popular among borrowers that more loans were originated in the three months to June 2014 than in all of 2013 combined.
Prosper has recently secured $70 million in funding to accelerate its growth and is one of the best lending platforms to help people understand peer lending. The company has launched its “Education, Awareness and Understanding” initiative to help increase understanding of this innovative and fast financing option.
You can apply for as little as $2,000 or as much as $35,000 with a term of three or five years. Your loan rate is determined by the loan amount, term and your Prosper Rating.
Seasoned returns for investors are provided in the table below. These are returns for loans originated between July 2009 and November 2013. While many of these loans are still in payment status, they have passed the point where a default is likely and returns should be relatively stable.
Peer to Peer Lending Comparison: Personal Loans
While Lending Club and Prosper have gotten most of the attention for being the biggest peer to peer lending sites, another player has come out as one of the best peer loan sites for bad credit borrowers.
PersonalLoans.com uses unique lending criteria to be able to make loans to borrowers with credit scores much lower than other p2p lending sites. The official cutoff for loans is a 580 FICO score but I’ve heard of people getting loans with lower credit scores, especially those that have already paid off a loan.
Besides the lower credit score needed for a loan, what I like about PersonalLoans.com is that it pulls together loans from different lenders in its network. This means many lenders are competing for your loan and the potential to get better rates on the website.
Personal Loans offers multiple choices for online loans including peer loans, personal loans and even traditional bank loans from banks in its network. The more options make it a great resource for borrowers.
I’ve put together a peer to peer lending comparison table below with the three p2p sites in the post plus two others I have used in the past.
|P2P Lending Site||P2P Borrower Fees||Minimum Credit Score||Loan Rates||Notes|
|Personal Loans||5%||580||9.95% to 36.0%||Three options including P2P Loans, Bank Loans and Personal Loans.|
|Upstart||0% to 8%||620||5.67% to 35.99%||Best for graduates and no credit peer loans.|
|NetCredit||No Fees||520||Vary by state||No fees and transparent pricing makes NetCredit a good choice for bad credit borrowers|
|Payoff||2% to 5%||660||6% to 23%||Specializes in credit card payoff loans with no hidden fees or charges.|
|Prosper Loans||1%||640||5.95% to 32%||Very low rates on some of the lowest fees - great combination|
Peer Lending Sites Comparison: What Peer Lending Borrowers Need to Know
Pay attention to the loan fee when you are deciding how much money to borrow. The loan fee will be taken out of your loan before you get the money so you need to ask for a little more than you need. For example, if you need $5,000 and your loan fee is going to by 5% then you need to ask for $5,250 to include the fee.
Understand that just because a peer loan is unsecured, it will still affect your credit rating if you miss a payment. Check out a recent post on credit score factors and how to manage your credit. Peer loans can be a great resource to pay off high-rate debt and get money for that special project, but they can also be just as dangerous as other forms of credit if abused.
Make sure you check out these three peer lending borrower risks before you take out a loan.
One of the biggest complaints I hear from p2p borrowers are the strict credit score requirements at Lending Club and Prosper. You’ll generally need a credit score of around 640 or higher to get approved for a loan on either site. That shuts out a big percentage of the population, especially bad credit borrowers that might need a personal loan the most to consolidate high-interest credit card debt.
For those with poor credit scores, I like Personal Loans.com as a good alternative. The site uses the marketplace model where you enter your loan needs and then lenders compete for your business. This can usually help get the rate down and credit scores of around 580 are usually accepted.
Remember that, unlike loans from a traditional bank that spreads its money across thousands of borrowers, your peer loan is funded by regular people. Your investors may put their trust in a hundred people, so funding your loan was a vote of confidence in you. Try to honor your commitment to that help even when money gets a little tight. Your hard work will be rewarded with a lower rate and faster funding when you ask for another loan.
As an investor, you want to look to the information in each rating category to decide if the additional risk is worth the return. It is important to note the jump in loss rate from the C- to the D-rated categories. The increase in loss is so great that the estimated return actually decreases. Make sure you check out a prior post on avoiding the three investment risks in peer lending to get started.
Prosper also publishes estimates for returns on recently issued loans. The information is important because loan rates have changed dramatically over the last several years. The estimated return on all loans issued from December 2013 through September 2014 is now 6.87% with most rating categories offering lower returns.
The High Risk rated loans is now the only group with an estimated return over ten percent. The drop in peer lending returns is mostly a function of historically-low interest rates for all fixed-income investments. While rates for peer loans have come down slightly, they still offer better returns than nearly any corporate debt including junk bonds.
Peer Lending Sites Review Statistics
The table below offers a side-by-side review of the two peer lending sites. Since the rating categories differ, Prosper starts with AA while Lending Club starts with A, I have just renamed them numerically. Each p2p site offers average rates within sub-categories so I have taken the average of rates across the whole category to display below.
You can see that the rates are pretty close on each site; Prosper tends to offer lower rates for higher credit ratings while Lending Club offers lower rates for lower credit ratings. Fees are nearly identical as well.
One of the biggest differences is the number of states where loans or investing is not allowed on each site. For borrowers, three states prohibit loans from Prosper and Lending Club though the platforms are constantly lobbying to open up the lending market.
There are 18 states that do not allow investing on Prosper: ND, NE, IA, KS, OK, TX, NM, AZ, AR, AL, TN, KY, OH, PA, WV, NC, VT, MA and MD.
There are 12 states that do not allow investing on Lending Club: OR, AZ, NM, TX, OK, AR, KS, NE, IA, ND, MI, AL, TN, OH, IN, NC, PA, VT, MA, NJ and MD. Fortunately, all but KS, OR, OH, MD and VT allow investing through a Foliofn account.
Both sites offer an investment account and a retirement account option. The retirement account is a great way to benefit from tax advantages. If you choose an investment account, your interest earnings will be taxed as income each year. That could be a pretty big tax bill if you are in a higher income bracket. Opening a retirement account means you do not pay taxes on interest until many years into the future. Be warned though that a retirement account means you cannot withdraw the money without a penalty until you reach a certain age.
I have seen some blogs recommend an investment account on both peer lending sites. There’s really nothing wrong with this as it will give you a larger loan portfolio from which to invest and it doesn’t cost anything extra. Check out each, using this peer lending sites review to get you started and then decide on which p2p platform you want to focus more time.
Peer Lending Sites Comparison: What Peer Lending Investors Need to Know
The biggest risk I have seen for investors is that people jump in without knowing their tolerance for risk. The idea of making 20% plus on high-risk loans draws investors into funding loans exclusively in the lower categories. Loans start to default and the investor gets worried, then they panic.
Instead, spend some time on this site and at others looking at different peer loan strategies. Returns can be very good and there are criteria you can look at to pick loans with a lower likelihood of default. Understand how much risk you can tolerate and stick to the rating categories with which you are comfortable.
Remember that peer loans are unsecured and borrowers may decide to miss payments rather than miss other payments on things like their house or their car. If a loan passes a certain period in default, it will be sent to a collection agency that will attempt to recover some of the money or put the borrower on a new payment plan. According to investors I’ve talked to, it seems about 30% of the loans that go to collection make it back to payment status while the rest are written off.
Investors also need to understand that peer loans are made on fixed rates. If interest rates increase over the next couple of years, and they are almost certain to do so, then those returns you are getting on current loans may not be as attractive.
Currently, bonds issued by large companies with five-year maturities are yielding a measly 2%, just barely covering what you lose to inflation. A yield of 5.5% on the highest-rated peer loans looks pretty attractive. If interest rates rise, the yield on newly issued bonds will increase and that 5.5% you locked in will not look as attractive.
In a rising rate environment, the yields on peer loans will probably also rise so an investor with a regular investing schedule should not have to worry too much.
Using peer lending sites review information will help you find the best rates for your loan and possibly add a few percent to your investment return. I’ve reviewed the biggest peer to peer lending sites that I’ve used here in the post. There are other p2p websites but I would generally recommend you stick with the most well-known. Make sure you understand the peer to peer lending comparisons between each site before taking out a loan and check your rate on a couple of different p2p sites to get the lowest rate.