Prosper vs. LendingClub: Credit Card Debt Consolidation Loan Comparison

What is the best place to lower your interest rates and consolidate credit card debt in order to pay it all off? The first thing to try is to call up your credit card company and negotiate your existing rate down. If that isn’t satisfactory, you could switch issuers and do a balance transfer to a new card with a low introductory rate. If you have qualifying credit, you can take advantage of no fee 0% APR balance transfer offers for up to 15 months.

I would say the next option to consider is P2P lending, which in my experience has lower rates than personal unsecured loans from banks. P2P is gradually becoming an accepted source of loans as shown by announcements of new institutional money coming in from hedge funds. Prosper has been around since 2006 and has done over $300 million in loan volume since inception, and LendingClub has been around since 2007 with over $500 million in loans. Both are now registered with the SEC.

Prosper vs. LendingClub Similarities

  1. Unsecured loans. Such loans are backed only by the borrower’s promise. If there is a default, the lender can’t repossess any property or garnish wages. The primary deterrent to defaults is a poor credit score that will increase future borrowing costs and potentially other side effects including affecting employment.

    Alternatively, you may be considering paying off your credit card debt with a home equity loan. This would change your unsecured debt into a secured debt. The danger is now if you don’t pay off that loan, you could lose your house. If that added risk doesn’t make a difference to you, then a home equity loan or line of credit will probably offer you a lower rate.

  2. Flexible amounts. You can borrow more or less than your actual outstanding credit card balance, and you’re usually given a choice of amounts for the same interest rate. But remember, the purpose of consolidation is to help speed up the process of getting rid of that debt.
  3. Fixed rates over the entire term. The problem with credit cards is that the rates are often unpredictable. “Variable” rates are linked to a benchmark rate, but even “fixed” rates that aren’t guaranteed for X months can just mean they’re fixed until you get a notice that they are now “fixed” at a new, higher number. Given the current low interest rate environment, you should be wary of rising rates.
  4. No prepayment penalties. You can pay off your loan early at any time, with no fees.
  5. No application fee. There is no fee to apply for a loan. If your loan successfully funds and you get the cash, then you will be subject to an origination fee that is rolled into your monthly payments.

Prosper vs. LendingClub Differences

  1. Minimum credit scores. Prosper minimum stated credit score is 640, LendingClub minimum FICO score is 660.
  2. Maximum loan amounts. Prosper maximum loan amount is $25,000, LendingClub maximum loan amount is now $35,000. Both lower the limits depending on credit profile.
  3. Slightly different fee structures. Both companies charge an origination (closing) fee once you successfully get your loan. If you don’t get the loan, no fees. They have slightly different fee schedules, but both have origination fees ranging from about 1% to 5% for the majority of loans. Both charge $15 fees for late payments or failed payments.
  4. Different loan term lengths. Depending on your requested loan amount and other factors, each lender may offer different terms. For example, LendingClub told me that loan amounts from $1,000 to $15,975 are only available with a 36-month term, even though they do offer 1-year and 5-year loans in other cases. However, with a $10,000 loan at Prosper I was given the choice of 1, 3, or 5-year terms. In general, the longer the term, the higher the interest rate at both places.
  5. Check processing fees. LendingClub charges a $15 processing fee per payment made by check. Prosper does not. Both companies allow you to make payments via automatic ACH withdrawal from a checking account with no fees.

Prosper vs. LendingClub Interest Rates?

Their full criteria for determining what rate you’ll pay is not disclosed but is based on a number of factors. Really, the best way to see which one will give you the best deal is to ask each one for a free quote. In both cases, getting a rate quote will involve looking at your credit report, but it will not result in a credit inquiry and will not hurt your credit score. If you do decide to move forward and get the loan, only then it will show up on your credit report.

My experience. I applied for a $10,000 debt consolidation loan at both places. I was offered a 1-year loan at 8.17%, a 3-year loan at 7.49%, or a 5-year loan at 10.85% annual interest rates at Prosper. I was offered a 3-year loan at LendingClub at 6.62% interest rate. For a $10,000 loan over 3-years and including all fees, my LendingClub payment was $307 per month and Prosper payment was $311 per month. So even though the interest rates seem rather different, the final monthly payments ended up closer than expected (though still a $150 difference in total payments over the whole 3 years).

Comments

  1. Jenna, Adaptu Community Manager says:

    Thanks for sharing your review!

  2. Squeezer says:

    great info. I hope to never have to use either for a loan, but I do have some $25-$50 investments with each

  3. I like the idea regarding these loans not requiring collateral to be held, and the loan is entirely based on credit. If a person defaults on the loan, it will reflect their credit negatively. This is a big deal, but safer than putting your home up as collateral.

    On the flip-side if a person takes a consolidation loan out and pays their payments on time each month, the loan can actually help them to build good credit.

    Most consumers have higher than a 10% interest rate on their credit cards, where even the 5-year loan at 10.85%, will be a better route for many consumers.

  4. Don’t apply to neither one. I had been approved by Lending Club to be told afterwards that i did not qualify, even though my loan was completely funded in 7 days. I really don’t know what is the agenda of these “peer to peer lending” bullshit. Plus you leave lots of personal information at their hands.

  5. I currently have loans with both. No hassles, no problems. Just some verification they have to do. I consolidated all of my credit card debt, have fixed payments for 3 years, and am saving about $300 a month on credit card interest!!!! As a result of paying off my credit card debit, my credit score soared, and I am now able to refinance my car from 5.98% to 1.99%. Another major savings! Whoo hoo, I feel like I won the lottery. But wait, with the extra money I have each month, I will now apply it to my Prosper loan and help pay that back in 1 1/2 years instead of 3, then apply that extra cash and finish paying my Lending club loan in 2 years.

  6. Thank you for the comparison!

    I have a fair credit rating, and wanted to consolidate my revolving debt. Lending Club denied my application immediately. However, Prosper did offer me a loan for the amount requested at an interest rate that was a bit high but still lower than average rate of my revolving debt. I look forward to paying off my debt sooner and establishing a much better credit rating.

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