Lending Club Highlights and Giveaways

In my previous post on peer-to-peer lending, I indicated that these networks are not quite ready for prime time yet. One reason was the stability of these companies, which was promptly addressed in the comments section — specifically, a 3rd party loan servicing agent will service the loans in case something happens to these companies. But to add to my wish list, I’d like to see them pay interest for money that isn’t in active loans. My opinion aside, these sites are gaining popularity with Prosper leading the pack at $121 million in loan originations and Lending Club is about to break the $10 million mark this week.

LendingClub Dashboard

Despite these minor complaints, I am intrigued by the concept of peer-to-peer lending and intend to keep building my portfolios at Prosper and Lending Club. Shortly after I started investing in Prosper, I also started to lend at LendingClub.com. In this post, I’d like to highlight some of the key differences between the two networks.

3 Rounds of Prosper vs. Lending Club

1. Credit Ranking System and Quality of Borrowers

In general, I believe Lending Club has a better credit ranking system and overall quality of borrowers. I say this because LendingClub.com credit ranking already accounts for important factors like DTI, FICO Credit Score, and the loan amount. Also, it appears that borrowers at LendingClub.com have lower debt-to-income ratio and better FICO Credit Score (which is not public information in Prosper).

If you’d like to see a really good explanation of this, check out The Dough Roller’s Prosper vs. Lending Club Smack Down — Who has the best interest rates?

2. Lending Process

This isn’t a better or worse thing. If you enjoy winning bids on eBay, you’ll get a little bit of that feeling with Prosper. Since I enjoy simplicity, I like the fixed interest rates based on credit ranking on Lending Club better. Otherwise, it’s very easy to lend on both sites.

Furthermore, both sites offer automatic portfolio investment mechanism so that you don’t even have to browse through the individual loans. The key difference is that Prosper’s Portfolio Plan only has a $50 minimum, whereas LendingClub’s LendingMatch system has a $500 minimum.

3. Lending Minimum and Lending Amount

On Prosper, the least you could lend out at a time is $50. At Lending Club the minimum loan amount is $25, so you could just use your sign-up bonus to fund the first loan. The advantage with Prosper is the ability to lend any amount above $50, so you can keep every cent working for you. On the other hand, LendingClub.com only accepts lending amount in $25 increment — i.e., I have $0.61 sitting in my account doing nothing at the moment.

In closing, one of the things I want to do before July is to have $800 in active loans with Lending Club. Why $800? Because at this level of investment, the expected monthly payments should be more than $25 — enough for me to start one new loan per month. This is similar to dividend reinvestment where my money is buying more shares for me without adding any more money to the system. Now, that’s exciting!

The Giveaways (closed)

I recently got my hands on 6 black LendingClub.com t-shirts (medium) and 2 pens. To get a t-shirt or a pen, follow these steps:

Sign-up using my Lending Club referral link
Validate your account to receive the $25 sign-up bonus
Once you get the bonus, email me with:
- the screen name and email you used for your LendingClub.com,
- your address, and
- your choice of prize
I will send out the prize as soon as I can

Other Giveaways

CreditWithdrawal is giving away some Quicken softwaree: The Great Quicken Giveaway Contest
I also have two other giveaways: a free eBook and two copies of TaxCut online.

In the mean time, please check out this really excellent collection of personal finance posts: Cheat Sheet: Ultimate Personal Finance Sites List by DebtKid.

8 Comments

OneCheapChick
February 29, 2008, 9:17

I’ve been experimenting with Prosper and Lending Club as well. I’ve had difficulty finding loans that fit my criteria on both sites. I decided when I started this that I’d only lend to people with very good credit…after all, if they’ve stiffed others in the past, I have no reason to believe they won’t stiff me. I invested $500 on each site about a month ago, and so far I have only been able to lend out $400 with Prosper and $350 with Lending Club. I keep getting “outbid” on Prosper and having loans “expire without being issued” on Lending Club. I’m still working on it and assume it’s just a matter of persistence.
This probably wouldn’t be a problem if I would relax my lending standards a bit, but for those of you who get nervous about lending your money to people with bad credit, be warned you’ll need a lot of patience. Otherwise, I love the concept and think both sites are worth an experiment.
Patrick
February 29, 2008, 12:06

Great article. I’ve noticed the same differences between the two companies, and was actually planning a similar article. (currently in draft as we speak!)
Lazy Man and Money
February 29, 2008, 14:02

Prosper addressed the issue of interest of idle funds at their recent annual conference. It’s a fairly complex regulatory issue. Their CTO brought up a great point… wouldn’t you rather be able to link your bank account (earning 3% interest) in a way that you can instantly and freely transfer funds when you bid on a loan vs. making 1% from Prosper? They said they are exploring both options since it’s the second “bug” ever inserted in their system. It’s not really a “bug”, but a feature request.
Does a medium t-shirt fit anyone nowadays? I have problems even with the large sometimes. I’m not a big guy either – 5′9″, 170lbs…
Mark @ TheLocoMono
February 29, 2008, 18:08

Sounds like you have done some research into this. I guess my only thought is what is exactly the point of lending through two separate and yet similar P2P programs.
You are not really spreading the risk, P2P is still has an inherited risk (unsecured loans are still unsecured loans) so my question is this why diversify across more than one program?
I guess I am old school, Peter Drucker preaches about learning one subject as well as you can so I guess in this case, I want to learn as much as I can about Prosper (based on my lending experience) as well as keep it simple. Think about how much work you have to do already to set up an exit strategy, ie. your death and instruction your executor to contact multiple P2P programs.
Mark @ TheLocoMono
February 29, 2008, 18:18

Also, how is having a better credit ranking system a means of reducing risk? Unsecured credit is still unsecured credit regardless of credit scores. It’s funny because I have 10 loans at Prosper and the ones with the higher interests are actually B credit grades whereas the ones with lower interest are C grades.
Only A grades have the most consistently lowest rates. And yes, they are still unsecured and at some degree of risk. It is really a good learning experience.
OneCheapChick
February 29, 2008, 20:38

I decided to try both sites not to add additional risk diversification, but just to see which one I liked better, since there are some key differences. Once I give this a little time to simmer, I will likely pick one (right now, I’m leaning toward Prosper) and stick with it for future investments.
As far as the credit rankings go, when I looked into the various risk/reward scenarios, historical data seemed to indicate that the higher interest rates paid with the lower grades would offset the increased incidence of default, and so the “smart” money is probably on the lower grades. But there is a worry factor for me with loans like these, and it goes up when I see a past history of delinquincies or poor credit. So I chose the “sleep well at night” option over the “smart money” option. When I get a little more money to play with, I will probably roll the dice with a few lower-grade loans and see what happens.
Pinyo
February 29, 2008, 21:50

@OneCheapChick – Agreed. It’s hard to find ideal loans. I am in a similar situation. I only lend to high credit rating borrowers with low DTI and no delinquencies. I guess patience is the key.
@Patrick – Great mind.
@Lazy Man – That’s one way of doing it, although I like to keep my money separate — bad habit.
I am an XL man myself, but medium is all I have…sorry. I’ll just have to send them to Lazy Man and Health.
@Mark – Lending through 2 networks is not about diversification, it’s about learning and experimentation. Beside, it’s basically free to start the first loan on LendingClub, so that’s what I did.
Better credit means less chance of delinquencies and defaults. With Prosper bidding system, you could end up with lower grade loan at lower interest rate. However, this is not possible on LendingClub
@OneCheapChick – Exactly. Also, don’t forget about the sub-prime mess. I am not intending to have that happens to my P2P portfolios.
MoneyBlogga
March 2, 2008, 16:45

Wow. You guys are certainly a savvy bunch. I’ve never heard of these P2P sites but my interest is piqued. Thanks for the very interesting article