Borrow Money With Prosper & Lending Club

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Earlier this year, I hosted a guest post by Jonathan sharing his experiences with borrowing money from peer to peer lending network Prosper. Just recently, I received the following email from a reader singing their praises:

I’ve borrowed twice now from Prosper and I love it. The first loan was $7000 at 8.65% for three years and the most recent was $8000 at 9.65% for three years. I got the 2nd in response to the credit cards jacking up my interest rate and slashing my credit limit no reason. I was so angry about the credit card behaviors that I wanted to get my debts as far away from them as possible.

There is no hassle, I applied for the loan, watched people bid the initial interest rate down, and eventually got the cash. Once the loan was funded, they called me to verify who I was. You have to provide documentation that you are who you say. They direct deposit the money into the account you specify a day or so later.


With lenders being very strict about who they offer loans to and credit cards slamming people with interest rate hikes and fees, borrowers are turning towards some atypical sources of funding to help pay down debt. Loans from peer to peer lending networks have some significant benefits:

  • Fixed interest rate: Unlike credit cards, these loans have fixed interest rates that will not change. The rates can’t be lowered or increased simply because the lender “feels” like it or because some equation tells them you’re suddenly riskier.
  • You can’t add to the debt: One of the difficulties with getting out of credit card debt is in the card itself. If you’re in debt, you can continue to pile on the expenses. That’s akin to digging your own grave when you think you’re filling in the hole!
  • Loans are reported to credit bureaus: This is a huge benefit that helps you battle down debt and build up your credit at the same time. You aren’t penalized for going to a p2p loan.
  • You’re done in 3 years: The loans are for a period of three years so you aren’t paying for a $10 pizza for the next ten years because of interest!
  • You get the best possible interest rate: When you go to the bank or stick with a credit card, they dictate the interest rate you get. With these loan marketplaces, investors bid down the interest you’ll pay. You set an initial number, investors, based on your credit history and current debt, can bid the interest rate down.


There are a few potential negatives about going to peer to peer networks for funding:

  1. The process can take a long time. It’s not uncommon for the process to take a month, which is how long it took for the reader to finish the process and that may be too long depending on your needs. The reason why the process takes so long is because they work like auctions, with investors bidding on how much interest they’re willing to accept to loan you funds.
  2. High credit requirements. Both networks require relatively high credit scores:
    • Lending Club is open to US residents with a FICO score of at least 660 and a debt-to-income ratio (excluding mortgage) below 25%. You need at least 3 years of credit history with no current delinquencies, recent bankruptcies, open tax liens, charge-offs, or non-medical collections account in the last 12 months. No more than 10 inquiries in the last 6 months, a revolving credit utilization of less than 100%, and more than 3 accounts on your report, of which at least two must currently be open.
    • Prosper is open to US residents with a FICO score of at least 640 and must be “approved by Prosper’s anti-fraud and identity verification systems.” It’s unclear how those systems operate.

I’ve never personally gone through the borrowing process but it seems painless enough. The prospect of having a credit card debt charging me double digit interest rates has always kept me out of that particular danger, but if I was in that situation, a single digit, fixed interest rate 3 year loan sounds mighty appealing.

{ 24 comments, please add your thoughts now! }

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24 Responses to “Borrow Money With Prosper & Lending Club”

  1. Soccer9040 says:

    After spending most of my time on the lending side (pre-reorganization) I tried it from the borrowers side and I must admit, it was pretty easy. As a lender I knew what I liked in the listings and I created my listing around a few things. A solid description of my financial situation, what I was going to use the money for, and how I planned to pay it back.

    You can tell who is out to scam lenders sometimes by reading their details. By answering all the questions up front I showed the lenders how little of a risk I was. I got $4,999 for a little over 6%. My loan closed days before the SEC cutoff prosper.

    Now after the reorganization I am not allowed to lend because they are not licensed in Ohio. So as my loans were paid off I slowly pulled money out.

  2. BrianC says:

    This is very intriguing. But if you have little to no credit card debt, looking around for a nice balance transfer rate will probably be the better option.

    • zapeta says:

      Perhaps, but you’d want to run the numbers on the balance transfer fee and compare it it what you’d pay in interest on Prosper/LC. I’ve seen cards that are charging a 5 to 8 percent balance transfer fee.

      • BrianC says:

        Of course. But I’ve been looking for a new card recently and there are still some 0% offers out there (though rare)–even some with a capped balance transfer fee.

  3. neerpatel says:

    I’m planning on opening a lender account in January!

  4. Foo Finance says:

    As a prosper lender and former borrower I can speak on both sides. I am doing fairly well as a lender and have about $1,600 invested that I continue to re-invest (my state, GA, allows prosper investing).

    As a borrower I borrowed $1,500 and paid it back early. It was an easy process and pretty painless. Certainly no more difficult than a regular bank.

    The key to borrowing on Prosper is to first look at loans that are nearly or fully funded. See how those people wrote their listings. Be thorough and exact on your financial situation. Answer ALL questions publicly and quickly. The more info you give the more bids you get and the lower your rate. It is an auction system.

    As a lender I do have certain credit statistics that I look at first. If you make it past that filter I read each listing carefully and pick 2 or 3 I like. Depending on how much idle cash I have I bid on 1 or 2 loans. There are more loan requests than money available so you have to sell yourself as a good borrower. Be honest, clear, and concise and you will have no problems!

    Prosper is a great way to destroy credit card debt. Even at the same interest rate you are paid off in 3 years (or less if you pay extra principal!). If your credit history is short or a little shaky borrow 2 or 3 thousand first to prove yourself as a borrower then ask for more later. Lenders like to see your Prosper history of paying on time!

    Hope this helps!

    – Foo

  5. Izalot says:

    I’m trying out Lending Club now. Does Prosper have any special promotions going on?

    • Foo Finance says:

      @ Mark – You can be a borrower and lender at the same time. I was both at one point. This is actually a good thing as a potential lender as they are lending their money too and know what a default would feel like and therefore not default themselves!

      It is true and common practice that those with good credit borrow and lend out at a higher right. I did exactly that but paid off early. Also, that is exactly what banks do! You put money in savings at 1.3% (you are lending to the bank, essentially) and they lend out mortgages (and other loans) at 5-6% or higher. They make money on the spread.

      The main difference is that you get FDIC insurance on your money (therefore no risk) and with Prosper you are taking the risk. For some it is worth it and for others it is not.

      @ S_S and NewPerspective: I agree that the default rates CAN be high. My theory is that 70% of investing in Prosper is doing your homework and 30% is luck, economy, and other uncontrollable factors out there. I would not recommend it as a primary investment vehicle. It is ok to invest a little money as a hobby or experiment but don’t expect to get rich at it.

      The bottom line is that all the statistics in the world cannot account for real life. People die, get divorced, get ill, economies go bad, disasters, etc. We call this risk. It cannot be easily measured or accounted for. Know the risks before you lend.

      I am sorry you had high default rates. I am not saying you did not do your homework. Just adding that part of it is luck and that is not always on our side. I have 4 defaults too and I did my homework. It is part of the game!

      Best of luck to all!

      – Foo

      PS: If you check my blog I post monthly Prosper reports on my returns and stats around the 15th of each month.

      • Jeanne Green says:

        No! u jus seemed so informed, I thought u might giveme some insight. I am 70, raised a son and 4 grandchildren…picked up some bad credit along the way. I need to borrow some $$$…wouldm I be able to assign my small railroad retirement check to ,monthly payments of $350 till loan was repaid?
        Since I am older, I could also take out a smal life insurance policy thich would be payable to lender. ZI know this is more complicaed, but in this manner everything would be covered. What do you think? Of course, interest would be figured in the toa; so i had no out of pocket expense?? u r so smart, i know i will get a straight answer. thanx much, Jeanne

  6. lostAnnfound says:

    I wonder if LC & Prosper have seen an increase in applications from people looking to pay off CC that have had the interest rates go up.

    Also, do Lending Club & Prosper report to any of the credit bureaus?

    • Moey1121 says:

      They both report to all 3 agencies. All of the potential borrows info shows up when you view it as a lender. It helps decide who to lend to.

  7. aua868s says:

    unless Lending Club offers in service in Oregon, I have to stick with Prosper for P2P lending.

  8. Mark says:

    Please tell me that you cannot be a borrower and a lender at the same time?
    I can totally see a novice with a decent credit rating borrowing at a lower rate and then lending it out at a higher rate. The get to keep the spread.

  9. Safeway_Sage says:

    I am on the other side of the coin. I have made a few investments in these websites and have subsequently learned that the default rate on these loans is higher than I would like.

    I think the rates are higher because the website owners didn’t have their algorithms set to deal with professional fraudsters. One blog I read actually has the default rate for Prosper at a whopping 44% of loans.

    So, the take away is this… If these sites do survive, expect the qualification process to be more stringent than it currently is. So, maybe it might require a little more documentation or a longer wait.


    • NewPerspective says:

      For what it’s worth… I’m 2 years into most of my loans on Prosper and I have a current default rate of 28.4%. I’m slowly pulling my money out and never loaning again.

      • Chris says:

        Ouch, makes me nervous about getting involved with them.

        • kitty says:

          I was considering it, but this seems too risky for me. At the default rate mentioned above, I don’t really see the advantage on lending on Prosper to buying junk bonds (and I don’t do the latter). I read that at present junk bonds default rate is 10%, and the yields on junk bonds seem much better than on Prosper. At the height of credit crisis last year, the feared default rate on junk bonds was around 20%, and the yields were incredibly high.

          This is what turned me off Prosper initially. At the height of credit crisis, I got 8.9% yield on investment grade bonds — this is what I got in November 2008 on Goldman Sachs bond. At the time, lending to Goldman Sachs seemed a whole lot less risky than to people I don’t know.

          Now these yields are gone. so I started thinking about peer-to-peer, but it is way too risky.

          • Jeanne Green says:

            Hi, i am 79 and looking for some smart advice. i need to borrow some $ and my credit score is abysmal !!!!!! 🙁 I raised a son and 4 grandchildren alone and was not careful. i have a $350 monthly railroad retirement check i could have come to a joint acct as pymt and would take out a life insurance policy for the loan amount to cover pymt if i died :(…do u think those 2 measures would suffice? thanx a bunch JZeanne

  10. lara says:

    I’m a lender in both. Prosper seems to have higher default rates, but more options to lend to (more loans). I’m barely breaking even there. At Lending Club, i’m making 7.4% after a couple of defaults, but the loans seem to be holding up better there, with collection updates when loans go late.

  11. eric says:

    It’s definitely a great alternative, especially with the guarantee of a fixed rate so that you know exactly how much and for how long you’re paying the loan back.

  12. Janie Johns says:

    Another option for peer to peer lending is Small businesses and startup entrepreneurs raise money through personal connections online (a.k.a person to person, peer to peer, social lending). This elevates access to funding, increases transparency, reduces costs, and lowers risk.
    Entrepreneurs connect with their social networks (friends, family, friends of family, community members, colleagues, alumni and others) to raise up to $99,000 in funding by requesting loans and gift contributions. Funders can get product discounts and freebies, as well as the ability to track how the funding is spent.
    Visit for more info about people funding businesses.

  13. linda says:

    my concern…hoping I can get assistance here…is that when I apply for a loan with Lending club or prosper it will run my credit through a lot of different people which makes it look like I applied for a lot of loans. Example…I went to once for the best interest rate on a car loan and a year later found out that about 250 banks looked at my credit report which made it look like I had applied for credit 250 times. It killed my good credit score. Does this happen with these types of loans. I asked lending club but just got rerouted to their website in the reply..can anyone help me answer this question?

    • Soccer9040 says:

      I have a prosper loan and it never showed up on my credit report. Not sure why, but it will not be 1 credit request per borrower. At most it will be prosper running your credit once and displaying it to the crowd to see if they want to lend to you.

  14. Stefanos says:

    It seems more logical to be prudent, set up a disciplined spending and savings program. By budgeting for a known fixed expense over each pay period and putting these funds into an expense only fund, it will allow funds to generate an internal loan within the non spending funds so to “pay Peter from Paul’ and then repay Paul internally. All it takes is a 49cent spiral bound notebook, a pencil and calculator.

    These internal non-consumable funds may generate a few dollars in interest. By robbing Peter to Paul you essentially keep your debt internal and save the interest expense you pay to an external source.

    These funds come straight off the top and are out of sight for regular spending except for the known fixed expense. The allocation of these internal deductions should be reviewed once a year to bring known yearly fixed expense into balance with the prorated amount deducted from take home cash.

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