LendingClub.com Launches New Social Lending Service to Compete with Prosper

November 5th, 2007 • Related • Filed Under • by admin

Just over a year ago, Prosper.com broke down paradigms about traditional money lending practices. Instead of heading down to the local bank or credit union to get a loan, people were able to loan each other money en masse through Prosper’s lending service bypassing the banking system all together. Unfortunately Prosper’s system was not without its flaws, and the people who were turning to Prosper for credit were the people who could least afford to pay it back. One report stated that Prosper.com had a 25% rate of default for its borrowers. Other reports state that number is much closer to 3%. A new company called LendingClub.com is creating a service to compete with Prosper that will hopefully provide a better lending experience.

The major difference between Prosper and Lending Club is who will be able to borrow money. Prosper.com will let anyone with a 520 credit score above borrow money, whereas Lending Club.com will only allow people to borrow money if their credit score is 640 or above.

Lending Club.com also has a collection agency that will try to collect your money if the borrower defaults, in a fashion similar to what Prosper does. You’ll pay a collection fee on late payments which can be anywhere from 7% to 30% depending on how late the payment is. With Lending Club, they’ll go after the borrower for you. Prosper.com has a similar debt collection service which will attempt to collect debts for a reasonable amount of time. After which the debt will be labeled uncollectable and sold to another debt collection agency. Prosper specifically prevents their lenders from attempting to collect themselves because of legal and civil liabilities that would come up because of unlicensed debt collecting.

The fee structure is a bit more advantageous for lenders and borrowers on Lending Club. On lending Club, the borrower will pay an origination fee of anywhere from 0.75% to 2% depending on how good their credit is. Lending Club takes 1% of any payment given to the lender as its fee from the lender. Prosper charges a closing fee of anywhere from 1% to 2% for the borrower, and anywhere from 0 to 1% as an annual loan service fee to its lenders.

The way the actual borrowing and lending takes place is very similar to that of Prosper, and you won’t notice much difference. Lenders can have borrowers chosen for them automatically, or they can browse through the difference borrowers and choose ones they think are more likely to pay than others.

Overall Lending Club appears to be a very good competitor to Prosper.com that’s a lot better of a choice for lenders, but only time will tell if the company will be reputable and be a long-term means for investors to make decent returns on their investments!