Social lending is also called “peer to peer lending”. While it’s only recently gained exposure online with the creation of social lending websites like Prosper.com and LendingClub.com; social lending existed long before banks! Family and friends have lended money to one another for centuries – and now with the technology of the internet, you can borrow money from people instead of banks in an organized way.

Social lending sites make it possible for people who have extra money to lend it to people who are looking to borrow money – and both parties benefit.

Lenders benefit by earning interest on the money they lend – much like any other kind of investment. Just as other investments have risks, there are some risks associated with lending on a peer to peer lending website (for example – the borrower doesn’t pay the money back!). As a borrower, there are numerous advantages of using social lending websites rather than traditional sources like bank loans, payday loans, credit card cash advances or borrowing from friends and family.

Borrower Benefits:

Interest Rates: Traditional sources of lending set their interest rates by the prime rates for the most part, but when you borrow through a social lending website, the lenders can specify acceptable interest rates on the money they lend. Competition among lenders may help lower your interest rate.

Origination fees: Many bank loans charge an origination fee when you first take out a loan, and the actual amount can vary. On both Prosper.com and LendingClub.com, you pay between 1 and 3% of the total amount borrowed.

Credit Reporting: When you borrow from a friend or family member, you won’t be able to improve your credit score through making your payments on time. As you make on-time payments through a peer to peer lending source, you are reported to the credit bureaus regarding payment status, which helps your credit score.

How to Choose Between the Leading Social Lending Websites:

Prosper.com and LendingClub.com are by far the most widely known peer to peer lenders online.  Choosing between the sites may come down to your personal credit score because LendingClub.com has a minimum requirements for a credit score to be eligible for borrowing.  If  you don’t have at least a 640 credit score you will not be able to apply for a loan through their website. LendingClub also requires that your debt to income ratio is under 30%, and that you have had no delinquencies in the last year – where as Prosper allows everyone to apply for a loan and leaves the decision up to the lenders themselves as to whether they want to take the risk of lending to you.

Other than these slight differences in who is eligible to apply, both Prosper and LendingClub offer similar services to borrowers and there is nothing that stands out to make one site better than the other



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