P2P Lending

Prosper vs. LendingClub SmackDown--Who has the best interest rates?

Lending Club vs. Prosper--Find out how to determine who offers the best interest rates

Editor's Note

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If you think Prosper and Lending Club set interest rates the same way, think again. In fact, how they set interest rates is fundamentally different.

Prosper versus Lending Club: Borrowers

Perhaps the most significant difference between Prosper and Lending Club is borrower qualifications. Lending Club requires a higher credit score, lower debt-to-income ratio, and longer credit history. In contrast, Prosper has developed a proprietary scoring formula called the Prosper Score. Together with a borrower’s FICO score, Prosper assigns each borrower this rating. Then they use the rating to set interest rates.

Whether you are a lender, borrower, or both, understanding the difference and how each site sets interest rates is critical. So in this SmackDown between the two Peer-to-Peer Lending giants, we'll look at how each sets interest rates and then discuss how to evaluate which one is best for you.


Loan Amount$1,000 to $40,000$2,000 to $40,000
Interest Rate6.95% to 35.89%7.95% to 35.99%
Fees1% to 6%2.41% to 5%
Loan Term3 to 5 years3 to 5 years
QualifyingCredit Score: 600 or higher
3 years of credit history
Debt-to-income Ratio of 40% or less
Credit Score: 640 or higher
Debt-to-income Ratio of 50% or less
AvailabilityNot available to residents of Iowa, West Virginia, Guam or Puerto RicoNot available to residents of Iowa and West Virginia

How Prosper Sets Interest Rates

Several ingredients go into Prosper's interest rates. As an initial matter, borrowers must satisfy the following requirements:

  • They must be U.S. residents;
  • They must have a FICO credit score of 640 or higher (if you don’t know your score, you can get it at the MyFICO website for a small fee);
  • They must have a bank account; and
  • They must have a Social Security Number

Once a borrower meets these requirements, Prosper determines rates based on the following:

  • Prosper Rating
  • Expected Loss
  • Loan term
  • Economic Environment
  • Competitive Environment

Of these factors, the Prosper Rating is the most significant. It comprises two scores: a borrower's FICO score and Prosper Score. Prosper devised the Prosper Score, which it claims gives a more precise picture of creditworthiness than does a traditional credit score.

Prosper developed the Prosper Score using its loan data. The score attempts to estimate the likelihood that a loan will go 61+ days past due. The score, which ranges from a low of one to a high of 10, is based on the following factors:

  • Number of trades
  • Number of delinquent accounts
  • Number of inquiries
  • Number of recently opened trades
  • Amount of available credit on bankcards
  • Bankcard utilization

Each borrower is then assigned a grade which, along with the loan term (three or five years), produces an interest rate. Because these rates can change daily, you should visit the official Prosper website to see current rates. But as of the date of this article, here are grades and interest rates for each Prosper Rating:

Read More: Prosper Review

How Lending Club Sets Interest Rates

To understand how Lending Club sets interest rates, the first step is looking at a borrower's qualifications. Lending Club is pickier than Prosper. This is good for investors, but not always so good for borrowers. Here's the list of borrower qualifications:

  • To borrow through Lending Club, you must be a US citizen or permanent resident and at least 18 years old with a valid bank account, a valid Social Security Number and a FICO score of at least 600.
  • Borrowers will need a debt-to-income ratio (excluding mortgage) no greater than 40%.
  • In addition, your credit history must show that you are a responsible borrower:
  • at least three years of credit history, showing no current delinquencies, recent bankruptcies (seven years), open tax liens, charge-offs or non-medical collections account in the past 12 months;
  • for credit scores 740 and higher, you need to have less than nine inquiries on your credit report in the last six months;
  • for credit scores below 740, you need to have less than four inquiries on your credit report in the last six months;
  • a revolving credit utilization of less than 100%; and more than three accounts in your credit report, of which more than two are currently open.

From all the above data, Lending Club assigns a grade to each borrower. The credit grades range from A to G, and each letter grade has a sub-grade ranging from one to five. For each grade and sub-grade, Lending Club sets what it calls a base rate. Lending Club then adds to the base rate an adjustment for risk and volatility.

Now at this point your head may be spinning. The good news for borrowers is that Lending Club can calculate all of this in an instant once it has your application, credit score, and credit history. But to give you an idea of rates as of today, here's a snapshot of rates for grades A through D:

How to Determine Which is Best for You

Borrowers want the lowest interest rate they can get. Investors want the highest interest rate they can get, given the risk they are assuming. So how do you compare Lending Club and Prosper?

I’ve invested in loans on both sites for several years. I’ve generally had very good experiences with both. From this experience, I’ve concluded that both companies are good options. However, Lending Club has a slight edge for investors, and Prosper has a slight edge for borrowers.

A big part of my conclusion is the fact that Lending Club’s standards for borrowers are higher. That protects investors, but can eliminate Lending Club as an option for a lot of borrowers.

Comparing rates between the two sites is difficult because they each use proprietary grading systems. You can't simply compare one grade to the other. As a borrower, I'd look into both to see which one offered the lowest rate. As an investor, I'd use Lending Club for higher grade investments. But I'd look to Prosper if I wanted to take on some additional risk in exchange for the chance of higher returns.

Checking Interest Rates

As a borrower, the only way to know for sure who has the best rate is to check. With both LendingClub and Prosper, you can check your rate without hurting your credit score. It's a good idea to do this preliminary shopping-around step before formally applying for credit with either creditor.

As LendingClub explains:

[C]hecking your rate won’t affect your credit score. Applying for a loan through LendingClub generates a soft credit inquiry, which we use to understand your creditworthiness. This is visible only to you, not to creditors or other users of your credit report.

Prosper versus Lending Club: Investors

Investor Qualifications

Not everybody can invest with LendingClub and Prosper. To do so, you must meet a couple of qualifications.

First, investing is not available in every state. For LendingClub, you must be a resident of one of the following states:

Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Prosper is available in fewer states:

Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.

Second, you must have a minimum income and/or net worth. What's more, these requirements can vary from one state to the next. As a general rule, you either need an annual salary of $70,000 AND a net worth of at least $70,000, OR you need a net worth of at least $250,000. In some states, notably California, the rules are a bit different.

My Experience as a P2P Investor

As noted above, I've invested with both Prosper and LendingClub for years. For this comparison, I thought I'd share with you my actual returns to date.

One thing is critical to keep in mind. You can't simply compare interest rates. We must also factor in risk. In the case of Prosper, most of my notes fall in categories C and D. For LendingClub, most of the notes fall in the B and C categories. The companies define these categories using different criteria. But my overall risk is similar on both platforms.

Prosper Returns

My annualized net returns from Prosper are 5.18%. That return is based on a portfolio of notes with the following characteristics:

LendingClub Returns

My returns through LendingClub are higher, coming in at 6.58%. At one point I experimented with buying notes on the secondary market. Given the time needed to evaluate these notes, however, the return just wasn't worth it.

If you'd like to sign-up to be a lender or borrower, you can use the following links:

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