Prosper vs. Lending Club – A Head to Head Comparison for Investors

March 28th, 2012 by

In this video and article below we give a head to head comparison of Prosper vs. Lending Club from an investor’s perspective.  Our analysis is based on the following factors: company size, average P2p loan returns, fees, services and support.  You can find the text transcript below the video.

Open a Peer 2 Peer Lending Account and get started with as little as $25

Open a Peer 2 Peer Lending Account and get started with as little as $25

Prosper vs. Lending Club Size: ($ Amount of New Loans Originated Per Month)

Winner: Lending Club

Lending Club  issues about $35 million in new peer to peer loans per month.  Prosper, about $10 Million.

Comparing Prosper vs. Lending Club based on size matters for the following reasons:

  1. For an investor the bigger the pool of loans the easier it is to diversify.  Both Prosper and Lending Club heavily emphasize the benifits of diversification.
  2. A larger number of loans also means a more active secondary market.  That is the market where you go if you want to re-sell your loans. Both Prosper and Lending club  have a secondary market.  The monthly turnover in the Lending Club Secondary Market is about $6M.  Investors are  able to sell their Lending Club loans for 99.4% of the original amount on average.

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Prosper vs. Lending Club: Average Returns & Fees

Winner: Prosper & Lending Club (Tie)

When comparing Prosper vs. Lending club,  the fee structure for investors is basically the same.  1% Annual Service Fee

Both firms offer an enormous amount of statistical data regarding peer to peer lending returns.

The high rated loans from Prosper and Lending Club will have similar performance. The same for lower rated, higher risk loans. As both firms have slightly different methodologies for rating loans (for example one uses FICO and the SCOREX credit scores), there may be an opportunity for smart investors to find pockets of opportunity where the loans of one firm outperform the other.

  • Prosper Seasoned Returns* on all Loans (includes charge-offs) 10.46%
  • Lending Club  Returns on D Rated Loans (includes charge-offs) 10.34%

*Prosper focuses on “seasoned returns”.  A seasoned return is a loan that has been around for over 10 months.  For “seasoned” markets like the markets for bank laons, I think this approach makes sense.  However, for peer to peer lending I am not sure this methodology is correct, given how fast the industry is growing.  If you exclude  loans issued in the last 10 months with Lending Club, you would be excluding the performance of over half their loans. 

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Prosper vs. Lending Club: Services & Support

Winner: Lending Club

Both Prosper and Lending Club have an easy to use online platform for buying and monitoring the performance of your loans. You can select individual loans or use their selection feature.  The selection feature allows you to diversify among hundreds with minimal effort.  You can invest using a regular or IRA account as well.

If you look at Lending Club vs. Prosper through the lens of  institutional accounts, Lending Club has the edge. They have two investment funds designed to make it easy for institutional investors to participate. They report having over 65 investors who have invested more than $1 Million  each, either directly or via the funds. To me the fact that institutional investors are interested in this market provides additional validation to investors.  

More Articles On P2P Lending

Investing In Peer To Peer Loans From Lending Club & Prosper
Prosper vs. Lending Club Comparison
Does Prosper Or Lending Club Offer Better Returns On P2P Loans
P2P Loans: 10% Returns On Average For The Last 26 Years
Top 5 Peer to Peer Lending Sites for Investors

Articles From P2P Expert – Peter Renton

Peter Renton on P2P Lending: Are You Asking the Right Question?
What are the Risks People Associate with Peer to Peer Lending?

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