The peer-to-peer lending market is as competitive as ever, but which companies are worth your time, money, and effort? Nobody wants to give their hard-earned cash to a dud company. Today we’re going to size up two titans of the peer-to-peer lending industry to help you answer: “which is better? Prosper or LendingClub?”
$17 billion. That’s quite a lot of 0s.
Prosper’s resume is pretty impressive, but should you invest your money with Prosper or with LendingClub?
LendingClub — are they all that?
And in the blue corner, LendingClub, one of the largest lenders in the business. The p2p boom of the 2000s saw many different competitors emerge to emulate Prosper’s success. Lending Club, like Prosper, is based in San Francisco and like many innovators, took Prosper’s template and arguably improved upon it.
From a business perspective, they’ve certainly eclipsed Prosper. They’re a larger company in terms of employees, assets, and revenue. Plus in a slightly shorter period, they’ve matched more than $28 billion in loans.
Bigger doesn’t always mean better, though. It’s time we started looking at the stats that matter.
Prosper and LendingClub investing, head-to-head
We’re going to put Prosper vs. LendingClub head-to-head through a few metrics that matter to investors like you.
- Current performance
- Investment opportunities
- Earning potential
- Cost of investing (fees)
- Worst-case scenarios for investors
Let’s get right into it.
One of the first rules of investing is: know the company behind the investment. So how are Prosper and Lending Club doing?
To be as up-to-date as possible, we need to look at the latest set of accounts for the first quarter of 2020. It’s worth noting that due to the Covid-19 pandemic, this year has been somewhat of a business anomaly. But it has shown us which companies are robust enough to survive it.
Let’s start with Prosper. Prosper managed to post a net income of $21m in March. On the surface, this seems impressive, but it is tainted by a meager revenue of just $3.25m.
Lending Club, on the other hand, pulled in revenue totaling $120.21m. However, it’s a much larger company in terms of employees and costs. They posted net losses of $48.09m.
These figures aren’t surprising, as the unsecured P2P loan market has not performed well in recent years. But both companies have the cash reserves to cover costs for a little while.
Round One results — fairly even. Lending Club’s revenue far outperforms Prosper’s, but given that the former had to let go hundreds of employees in April, there’s no clear winner here.
Both companies facilitate the matching of unsecured peer-to-peer loans for terms of either 3 or 5 years. Prosper only offers personal loans, whereas Lending Club also finances auto and business loans too.
In terms of the personal loans, the amounts differ slightly — Lending Club has a slightly larger range. Their loans go from $1,000 to $40,000, compared to Prosper’s $2,000 to $35,000.
The minimum values required for investing in both platforms are quite different. Lending Club asks for at least $1,000, whereas Prosper just wants $25. In terms of testing the waters, it’s certainly easier to buy-in at Prosper’s table.
Round two results — Prosper edges this one, with a more accessible pay-to-play figure of $25 to Lending Club’s $1,000.
Now for perhaps the most important comparison for investors. On which platform can you earn more?
In terms of Prosper vs. LendingClub, this number requires some reading between the lines as you need to factor in their default rates and the time frame provided.
Prosper, for example, gives you the historical returns on their products within a wide range.
Their safest bets, loans with an AA to a B rating, yield 3.6% to 6.5%. Their riskier options C to HR (High Risk) provide between 3.4% to 8.3%. The combined figure for all ratings is 3.5% to 7.5%. This range is pretty hard to assess. 3.5% isn’t a great return for the risk of an unsecured loan, while 7.5% is pretty respectable.
Lending Club, however, makes it a lot easier to find and digest their financial information and provide plenty of data about the returns you can expect. The historical average return across all loans is 5.97%, right in the middle of Prosper’s range.
The lowest returns are found with the riskiest loans, with a historical average of 3.58%, while the highest rates are found in C and D grade loans, which have averaged 6.46%. Lending Club’s safest loans, i.e. those to borrowers with excellent credit, have yielded just over 5%, which isn’t bad at all.
Round Three — Lending Club takes this round. Not only do they have more and a wider range of loans to invest in, but the potential interest rates are also clearer and better.
The cost of investing (fees)
These companies have to make money, so there are of course fees to pay for the privilege of investing in either one. The amount is calculated a little differently for each company.
Lending Club takes 1% of every loan repayment, whereas Prosper will charge you an annual 1% of the loan principal. If loans are consistently paid off on time at maturity, it will be cheaper for you to have your money with Lending Club.
Round four results — if low fees are what you’re after, then it’s a no brainer for Lending Club.
If the worst happens (investor risk)
As an investor in unsecured loans, the one thing you don’t want is for your borrower to default. There’s no collateral to quickly liquidate for you to get your money back. Plus, the loan company will need to put in time and money to recover whatever they can — and you’re going to have to pay for it.
So, what are the chances of a default happening? with Lending Club the average default rate across all loans is between 6 and 7%. The latest figures I could find for Prosper were from 2015, where their default rate was between 3 and 4%.
If they have to bring legal action against a borrower, both companies are going to charge you 40% of the amount recovered. Lending Club reduces that figure to 30% if they recover funds without legal action, but stipulates that there might be other fees involved. They provide no further information on what these fees might be.
Round five results — Fairly even, though Prosper comes out a little ahead due to a lower default rate and no ambiguous fees for recollecting the principal.
So should you invest in Prosper, LendingClub, both or neither?
From what we’ve seen, the companies offer similar returns, similar default rates, and similar fees. Lending Club’s larger profile might be a strong selling point for some, but with a minimum fee required of $1,000, it’s a decision that will require some thought.
Not only do both companies provide unsecured loans, but your investments are not FDIC insured. There are no guarantees of you getting all or any of your money back if the worst happens. If you are someone seeking higher returns you are likely out of luck with both platforms.
So what’s a good alternative?
In a battle between old and outdated models for investing like Prosper vs. LendingClub, sometimes there are no real winners.
If you’re not happy with the risk involved with unsecured peer-to-peer loans, there’s 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 don’t need to worry about defaults as there’s 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 (minimum 30 days).
If you’re 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.