The Lending Club and Prosper are both peer-to-peer investing and lending groups, and they are both fine options if you need a loan. They much prefer to give consolidation loans because they are safer, and the peer-to-peer companies are very safety conscious. The entire peer-to-peer lending industry depends on people trusting this new form of investment, and people will not trust them if they start making big losses.
Peer-to-peer companies such as the Lending Club and Prosper feel that consolidation loans are the safest because there is a higher chance the borrower will be able to repay the money. After all, a consolidation loan doesn’t add to a borrower’s monthly outgoings, it usually lowers them, which makes the borrower a safer applicant.
Why Peer-to-Peer Companies Like Giving Out Consolidation Loans
Just to clarify. If Beryl is paying $55 per month on one credit card, $88 per month on another credit card and $12 per month on her overdraft. If she takes out a consolidation loan, then all of those outgoings disappear, and a new outgoing appears for the consolidation loan’s monthly payment. If the monthly payment is less than $155, then Beryl wins. If the loan is $155 or less, then Beryl is a safe investment for the peer-to-peer company since her lack of delinquent payments suggests she was doing okay paying out $155 per month before she took out the loan.
Applying For A Lending Club Loan
First you visit the Lending Club homepage and you try to find your rate. In a perfect world they would kick out a rate right away like a High Street bank does, but they have to look at your credit rating and such before giving you a confirmed rate. Nevertheless, it is a soft look at your credit rating that will not affect your credit rating.
I’m a big fan of Credit Sesame myself for checking credit as it only takes about a minute to sign up at Credit Sesame (for free and no credit card, unlike some of the credit check companies) and you can see your Credit Score. They have a fully featured Android or iPhone App you can use too.
You didn’t hear it from me, but some credit companies (not saying which), will not accept your application if you do not have more than $10,000 per year in disposable income. If you were making $30,000 per year, it may be wise to indicate that your budget only takes up $20,000 per year.
If you are accepted for a loan, you are given a rate. You are interested in the APR rate and not the misleadingly low interest rate. If your APR is very high, it may be worth working on your credit rating for six months and then trying again.
If your credit rating is okay and your credit history doesn’t show anything too tragic, then the company will offer you a range of borrowing choices. It is fun looking through to see which you could apply for if you wanted.
Don’t get too excited after you have picked your loan because you may still be turned down if your details are not as pleasant as the Lending Club thinks they should be. Below is a screenshot of the first page of the loan details section. After that, there is a long list of the main factors that the Lending Club uses to figure out if you are eligible for a loan. If you do not suit an application, then make a few changes before you apply.
The Things That Affect Your Lending Club Decision
When you apply for a loan with the Lending Club, these are the things that the staff claims the company looks at and considers. The staff we spoke to claim that they do not know which is more important than the other, but they did say that the most common reason for rejection was because an applicant’s credit score (FICO) is below 600. Here are the factors they consider:
Your Credit History
If you have had a number of recent credit inquiries, then it makes your credit history look bad. If you have been declined recently, then it looks even worse.
Your Credit Score
This is the number that the credit rating agencies have judged you to be. It is how trustworthy you are when it comes to credit. The higher the score, then the higher the chances are you will be approved for a Lending Club loan. If you don’t know your credit score, you can sign up in less than 90 seconds with Credit Sesame for free without a credit card to find it out.
Your Verifiable Income
Some online articles say your employed income, but the Lending Club staff told us that it is verifiable income, which may include trust funds, self-employed earnings and so forth.
Your Debt-To-Income Ratio
They say that they do not count your mortgage. Everything else, from your car payments to your credit cards, are counted. For example, if you are paid $1000 per month, and you pay $300 on debts, then your debt-to-income ratio is 30%, which means you may get a Lending Club loan.
Your Delinquency Number
Over 99% of the people approved for Lending Club loans had no delinquent payments on their credit reports over the last year. Over 79% of approved applicants had no delinquency over the last two years. In other words, delinquency is a big deal to the Lending Club and if your credit history shows that you miss payments, then you will not get a loan.
Your Delinquency Amount
If you are one of the lucky few who has gained a Lending Club even though you had payment delinquency on your credit history, the amount of delinquency matters. The average amount for approved applicants is $436. In other words, if you have had delinquent payments over the last few years, it had better be a very small amount.
The staff told us that over 2016, of all the people who applied with civil judgments on their credit history, only 21% were approved. In other words, if you have a civil judgment against you in the last 7 years, then you are unlikely to get a Lending Club loan.
Of all the people who applied for a Lending Club loan in 2016, only 2% had collections on their record. Over 98% of approved applicants have no collections whatsoever.
The Lending Club obviously takes a hard line against people with collections on their record, but their approach is softer with medical collections. The staff told us this, but didn’t give us any statistics to show how “soft” their approach was.
Overall the people who were approved for Lending Club loans in 2016, only 2% had tax liens.
Lending Club – Final Thoughts
They take a hard line on collections, payment delinquency, and tax liens. They take a slightly softer line on medical collections and civil judgments. The company doesn’t mind if you are in a lot of credit card debt, they like it if you have had a solid income for years, and a FICO score below 600 will disqualify you. The higher your FICO credit score is, then the better the interest rate is that you receive.
Getting A Loan With Prosper
As you will see below, the process for applying for a loan is not much different with Prosper as it is with the Lending Club. The only difference is that Prosper has an origination fee, which isn’t very well explained, but I will discuss later. You start by getting your rate quote from the homepage.
Enter your details but be wary of entering your employment status if it is anything other than “Employed.” Some will lead to an automatic rejection, and others lead you to a page where they say you either have to call, or that you are not eligible for some unknown reason. It is unfair that they make you sign up when they already know you will not qualify. They may as well tell you from the start.
Again, you are looking at the APR rate and not the interest rate. You may notice that your APR is higher with your Prosper loan than it is with your Lending Club loan. That is because a Prosper loan is easier to get.
Just like with the Lending Club, you get the giddy thrill of looking through their lending options and picking how much money you fancy. When you take your loan, they are going to charge you 5% of the loan as an origination fee, which is added onto your debt interest.
Just like with the Lending Club, the part where you enter your details may render your application as disqualified. Still, if that is the case with Prosper, it is probably the case with most lenders.
The Things That Affect Your Prosper Loan Decision
Getting a loan with Prosper is far easier than it is with the Lending Club. With the Lending Club there are things that will render your application dead upon arrival, but Prosper take a relaxed attitude to most things besides Bankruptcy.
Speaking Of Bankruptcy
Prosper will refuse your application if you filed within the last year, which is frankly fantastic. You would think it would be if you filed in the last 7 years, but they say it only counts over the last 12 months.
You need a score of over 640, but since there other acceptance factors are so loose, you can easily forgive them for wanting a slightly higher credit rating than the Lending Club.
They don’t like the usual nasty markers on your credit history, such as collections and the like, but what really hacks them off is credit inquiries. What is nutty is that their interpretations are less strict than the credit companies themselves. Most credit scoring companies will start lowering your credit rating if you have more than three credit enquiries in a 6-month period, but Prosper don’t mind if you have up to seven within a 6-month period.
They want to see that you have at least three open credit accounts. Just like with the Lending Club, it works in you favor if they are credit card accounts.
A Solid And Provable Income
They don’t like people on benefits, unemployed, students, self-employed, retired or “Other.” Frankly, they like people who are employed on a full-time basis and for longer than 6 months.
The deal is the same as with the Lending Club, if your Debt-To-Income ratio is less than 50%, then you are in the clear for a successful application. If you earn $3000 per month, but you are paying $1600 per month on your debt, you will be denied a Prosper loan (mortgage payments don’t count).
Conclusion – Both Are Great Options
It is true that Prosper has higher rates in general. However, if you have a good credit rating, the APR rate they give you will be very competitive. If you have a credit rating that is over 640, but your other application elements are not too hot, then Prosper it is. If your credit rating is a little lower, but you have no delinquencies and you run a tight ship, then the lower rates of the Lending Club are for you.
You may ask why people with great credit ratings would try for a Prosper loan if the APR will be worse than with the Lending Club, but there is a chance that Prosper will lend you more than the Lending Club, so there is a good reason for people with a high credit rating to try Prosper.
Both companies are fine options for borrowers, and you should seriously consider them before High Street banks, and certainly before money companies that are found online.