Comparing Peer-to-Peer Lenders: Prosper, Lending Club and Zopa

Welcome back from the holidays! I hope your time off was as restful and reflective as mine. Now, it's time to launch straight into the busiest financial time of the year. Traditionally, the months between New Year's Eve and Tax Day are the peak season for personal finance. During this time, we'll be working extra hard to cover resolution tips, comment on financial news and answer your questions.

Let's kick off 2008 with a dissection of one of the most important innovations in the financial world: peer-to-peer lending. So-called "eBay of loans," these sites allow borrowers and lenders to connect direct for affordable and untraditional lending online. The three biggest peer-to-peer lending sites - Prosper, Lending Club and Zopa - are all similar but with some key differences. We did the research to help you compare:

Prosper.com
Prosper is the most established peer-to-peer lender in the US. they have 500,000 participants and $100 million in loans. Plus, Prosper doesn't have a credit score minimum for borrowers.

For borrowers:

• Loan rates from 7.70% to 26.60% (some are posted as high as 35%), plus a 1-2% closing fee.
• You can borrow from $500 to $25,000.
• 3 year loan term with no prepayment penalty.
• No posted credit score or income minimum.

For lenders:

• 2.98% to 9.29% annual return depending on who you lend to, minus a .5% to 1% annual fee.
• Default rate 2.7% and expected to rise as loans mature.

Lending Club
A peer-to-peer lender formerly tied to social networking site Facebook. Focused on the prime market. 

For borrowers:

• Loan rates from 7.62% to 17.86%, plus a .75% to 2% processing fee.
• You can borrow from $500 to $25,000.
• Requires borrowers to have a 640 FICO or higher.
• 3 year loan term with no prepayment penalty after the first 6 months.

For lenders:

• Average 12.25% portfolio return (although the time period for this return is unclear).
• 1% fee from all payments made to the lender.

Zopa
A peer-to-peer lender well established in the UK, and new to the US. Zopa is partnered with credit unions.

For borrowers:

• Rates from 8.75% to 16.99%. No fees as long as you have direct withdrawal.
• You can borrow from $500 to $25,000.
• Required to have a 640 FICO or higher and income over $2,000 a month.
• 5 year loan with no prepayment penalty.
• Possibility for loan to be aided in repayment through "Help" program from lenders.

For lenders:

• Earn up to 5.1% in a 1-year insured CD. (Rates vary depending on how much "help" you grant to borrowers)
• $500 minimum to invest.
• Default rate of 0.20%.

In general, peer-to-peer lending works best for consumers with high credit scores looking for low rates on short term loans. Consumers with less than perfect credit might not be able to qualify for a loan or, if they do, may be granted extremely high rates. And because the loans don't have pre-payment penalties, they can be a good way to affordably borrow for a under a year.

Have you borrowed or lent through one of these peer-to-peer lending sites? What was your experience? Share your feedback in the comments section below.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Comments

[Rob]

Emily:

Thanks for including us in your article today.

We are very excited about the growth of the person to person lending space this year and are looking forward to even more in 2008.

For those interested in trying out our service, sign up using the link below.

https://secure.lendingclub.com/refer.action?referrer=CreditcomBlog

I will deposit $25 to lend or borrow.

Cheers

Rob Garcia
Web Production, Director
Lending Club

[Marie]

I borrowed from Prosper (1k @18%) and look to pay it off about 15 months early. Can't wait!
I had no trouble, I even had a guy email me with ways to help clear up my debt (ebook)

Other than that, no troubles at all.

[Tom]

Nice review of Prosper, Zopa and Lending Club.

I'm a lender on Prosper and Lending Club and also enjoy blogging about them.

I just noticed one correction - the minimum amount that you can borrow on Prosper is $1000, not $500.

Great article!

[Rob]

For some reason the URL I posted above is getting cut-off.

Here is the full link https://secure.lendingclub.com/refer.action?
referrer=CreditcomBlog

(put the 2 lines in one though)

You can also click on my name below.

Cheers
Rob from Lending Club

[Kim]

I would like to borrow $8000 can proper help me? How does it work?

[EmilyPeters]

Hi Kim - You can borrow $500 to $25,000 through Prosper. Your odds of approval and rates will improve if your credit score and income are good. Basically, lenders will bid to fund your loan request.

[WealthBoy]

I just joined Prosper in December of 2007, so it's too early for me to say how good of an investment vehicle it will turn out to be. I'm fairly confident that I should be able to make a much better return than I would in a CD or money market account. I can say that so far, I like the service and the ease of setting up an account and begin lending.

[Matteo]

Prosper does require a minimum credit score of 520 to sign up to borrow using their scoring system which is not the same as your FICO score, so it could be lower than FICO. I was turned down from posting a listing after I created an account. My 3 in 1 score is now in the 640's so I may try again, as I need a credit to re-build my credit.
See link: http://thebankwatch.com/2007/08/30/review-of-prosper-lending-club-and-the-sub-prime-crisis/

Thanks
Matteo

[Kyle M. Stephens]

I thought you guys might enjoy my new blog: KyleMStephens.com. I poke fun at some of the Prosper listings I come across while discussing whether I would bid on it or not.
Enjoy!

Kyle