Peer To Peer Lending Sites: Lending Club vs Prosper vs Kiva

by Stacey Doyle on Debt, Credit and Loans

Got a great FICO credit score? Then you’re in luck to receive the best rates from lenders.

In light of the recent financial crunch, the latest buzzword for getting and giving cash is peer to peer lending. With p2p lending, both borrowers and investors enjoy flexible financing without the involvement of major financial institutions. This makes it possible for all types of borrowers and lenders from around the world to profit from their connection.

Microlending 101

Peer to peer lending is also referred to as microlending. Much like the name suggests, small amounts of cash are exchanged between everyday people. Through a lending network, investors can offer to loan as little as $25 toward a borrower’s goal, while borrowers can request anywhere from a couple of hundred to several thousand dollars. Borrowers reveal their credit history and their reason for needing money, if applicable.

An investor reviews a borrower’s financial circumstances and loan requirements, to see if he’d like to help the borrower out. Several investors can contribute to fulfill a single borrower’s loan. The parties agree to an interest rate, which is how investors profit from peer to peer lending. There are different peer to peer lending groups with their own distinctive goals. Here are the more popular ones:

Lending Club

Lending Club

Lending Club seeks to help borrowers get better interest rates and aims to have lenders receive higher investment returns by eliminating the complexity and costs of dealing with traditional banks. Borrowers with good credit (at least a 660 credit score) can get 3 year term personal loans from $1,000 to $25,000 at fixed rates. Often the interest rates charged are better than the rates offered by conventional lenders. Borrowers apply online for free, and get a quick approval. Most funding is completed in two weeks or less. Monthly principal and interest amounts are automatically deducted from the borrower’s bank account.

Lending Club lenders (or investors) have enjoyed a net annualized return of more than 9.5 percent since 2007. To become a lender, you’ll need to open an online Lending Club account and deposit your funds though PayPal, ACH, check or wire. By building a portfolio of notes (which represent the loans made to borrowers), lenders/investors are able to receive monthly payments of interest and principal with no hidden fees charged.

To become a Lending Club borrower, here’s where to apply.
To become a Lending Club investor, here’s where to apply (you’ll receive a $25 bonus if you qualify).

Check out our Lending Club review for more details on this lending network.


A Great New Investment Opportunity

Just as with Lending Club, Prosper borrowers must have a credit score of 640 or better, making this a viable vehicle only for those with good credit. As far as who can be an investor or lender via Prosper: only US residents with bank accounts are qualified to bid on loans. Investors can bid directly on listings from borrowers or on notes offered for sale via the Prosper Trading Platform.

Now here’s the difference between Prosper and Lending Club: while Lending Club grades and sets the interest rates on loans in their network based on risk, Prosper functions more as an online marketplace for p2p lending and borrowing and thus, works like an auction. Lenders compete for borrowers by offering the best interest rates on loans. All Prosper loans are unsecured, 3 year fully amortized loans. The interest fee is fixed for the life the of loan, even if the borrower makes a late payment. Monthly payments are fixed and are deducted from the borrower’s bank account, and there is no penalty to borrowers who decide to pay their loans in full early.

To become a Prosper borrower, here’s where to apply.
To become a Prosper investor, here’s where to apply.



Kiva is a bit different from Lending Club and Prosper, given that it’s a microlending site where the lenders provide loans without expecting a profit. Kiva has a mission to connect people through lending for the purpose of alleviating poverty, and enables lenders to lend money directly to entrepreneurs around the world. Many borrowers live in countries where bank loans are not possible so getting a loan could mean the difference between supporting their family and doing without.

Typically, the course of a Kiva loan lasts about 6 to 12 months. Lenders receive journal updates and a log of repayments to keep track of the entrepreneur’s progress. Even without earning interest, lenders feel good about lending to people who truly need the assistance. Also, building these small businesses will ultimately give the global economy a much-needed boost.

For more information, please check out our Kiva review.

Peer To Peer Lending Sites: The Bottom Line

Borrowers with good credit can get the best interest rates on unsecured loans through peer to peer lending without all the red tape and fees associated with traditional banks and lenders. Unfortunately, borrowers with poor credit won’t have the same kind of opportunities. This goes to show how important it is to build good credit and maintain a strong credit standing. If you have concerns, check your credit score on a regular basis and make sure to manage it well. On the flip side, investors can achieve lofty returns from peer to peer lending based on the loans they choose to fund.

As we have seen, Kiva is geared towards people in developing nations looking to build a business from nothing or nearly nothing. Lenders may not find Kiva as profitable but it is also a form of charity towards the world economy. Prosper and Lending Club give investors the opportunity to earn significant profits through interest charged on loans. As many happy investors can attest, those who choose the right loans for their lending portfolio can realize impressive returns through peer to peer lending.

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{ 1 comment… read it below or add one }

1 Robert Carreiro December 27, 2010 at 4:46 pm

I’d like to find out about loans in my business to provide affordable housing. I need loans for rehab and debt consolidation.

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