The 4 Best P2P Lending Platforms For Investors In 2017 -- Detailed Analysis (2024)

Peer-to-peer lending is a new method of debt financing that allows people to borrow and lend money without a financial institution. Harnessing technology and big data, P2P platforms connect borrowers to investors faster and cheaper than any bank.

P2P lending has grown rapidly in recent years and is a new source of fixed income for investors. Compared to stock markets, P2P investments have less volatility and a low correlation. They also offer higher returns than conventional sources of yield.

With interest rates at all-time lows since 2008 and many historically “safe” investments like government bonds carrying negative yields, investing in P2P loans in 2017 is a no-brainer.

Here, I take an in-depth look at the four best P2P lending platforms for investors, including their default rates, interest rates, and other important metrics.

Lending Club

Founded in 2007, Lending Club is the world’s largest P2P lending platform with over $20 billion in loan issuance. It offers both consumer and small- and medium-sized enterprise (SME) loans over fixed periods of 36 or 60 months.

Garret/Galland Research

Garret/Galland Research

Lending Club has grown exponentially and currently has a 45% market share. It raised over $900 million from its IPO in 2014, but its share price has since fallen 72%.

The company was recently embroiled in a scandal surrounding founder Renaud Laplanche. He was forced to resign after an internal investigation found improprieties in the company’s lending process, including the altering of millions of dollars’ worth of loans.

Although the event damaged the reputation of Lending Club and the industry, the company is well capitalized. The company prospectus states that in the event of bankruptcy, a backup system will come online and function as the intermediary.

Lending Club operates on a notary business model, meaning it acts as an intermediary between borrowers and investors. Once a loan has been funded, the money is released to the borrower by a partner bank. Lending Club and Prosper (reviewed below) both use Utah-based WebBank.

Lending Club then issues a note to the investor that is essentially a security. Lending Club offers loans from $1,000 to $35,000 for individuals and from $15,000 to $300,000 for businesses.

The next charts show the average interest rate charged to borrowers across all credit grades for 36- and 60-month loans.

(Source)

(Source)

We can see from the variance in default rates that Lending Club’s grading system works as it should…

Garret/Galland Research

Garret/Galland Research

…with corresponding increases in returns.

Garret/Galland Research

Garret/Galland Research

Lending Club charges investors a fee equal to 1% of the amount of borrower payments received within 15 days of the due date. The borrower pays an origination fee that ranges from 1% to 5%, depending on the grade. Investors must deposit $1,000 in order to start investing on Lending Club.

Lending Club uses a model rank system to grade borrowers. The system uses a combination of a proprietary scoring model, FICO score, and other credit features of the applicant.

For non-performing loans, Lending Club charges investors 18% of any amount collected if no litigation is involved. If litigation is needed, investors must also pay 30% of hourly attorney fees.

Prosper

Launched in 2006, Prosper was the first P2P platform in the US. It has since funded over $6 billion in loans and serviced over 2 million customers. Prosper only offers unsecured consumer loans and does not make SME loans.

Like Lending Club, Prosper offers 36- and 60-month loans with amounts ranging from $2,000 to $35,000. It also operates under the notary business model.

Prosper offers its loans on a grading scale:

Garret/Galland Research

Garret/Galland Research

Default rates on Prosper loans:

Garret/Galland Research

Garret/Galland Research

Returns across all grades:

Prosper charges borrowers a “closing fee,” which ranges from 0.5% to 5%, depending on the grade. Investors are charged a 1% annual fee based on current outstanding loan principal. The minimum investment is $25.

Prosper grades borrowers through its Prosper Score. This proprietary system focuses on criteria such as debt-to-income ratio and other “soft checks” conducted by credit bureaus.

Prosper uses both the custom score and the credit reporting agency score to assign the borrower grade. Prosper bundles all non-performing loans and sells them to a third party. The affected investors then receive an amount proportional to their defaulted loan.

Lending Club and Prosper are the big players in the industry and the only services open to retail investors. The platforms covered below are available to accredited investors only.

Upstart

Launched in 2014 by a bunch of ex-Googlers, Upstart has originated more than $300 million worth of loans.

Garret/Galland Research

Garret/Galland Research

Upstart uses unique grading criteria. It looks at FICO scores but also considers educational background. The firm has the lowest default rates across the industry thus far. Over 94% of loans are on track to be repaid in full.

Upstart’s target niche is young professionals—over 90% of borrowers are college graduates—and small-business start-ups. It offers loans between $3,000 and $35,000 for fixed periods of three to five years. Interest rates range from 4% to 26%, depending on grade.

Garret/Galland Research

Garret/Galland Research

Upstart employs a modeling system that has so far been remarkably accurate at predicting future defaults and returns.

Garret/Galland Research

Garret/Galland Research

The way Upstart operates differs in many ways from other P2P lenders. To start, investors do not pay fees. The company makes its money solely on origination fees from the borrower. If a loan defaults, Upstart refunds the investors using the origination fee. This means if loans go bad, Upstart loses. It has skin in the game.

Garret/Galland Research

Garret/Galland Research

Loan selection also differs in that investors cannot cherry-pick individual loans. Instead, they choose to invest in a specific grade or loans with set criteria. The minimum investment is $100.

Funding Circle

Funding Circle started in the UK and entered the U.S. in October 2013.Sam Hodges is the co-founder and U.S. Managing Director.The company only makes business loans and operates in the US, UK, Germany, and the Netherlands.

Garret/Galland Research

Garret/Galland Research

The company has originated more than $3 billion in loans by offering loans from $25,000 to $500,000 in the U.S. Rates range from 5.5% to 27.8%, depending on grade.

Investors are charged a 1% monthly service fee on all payments received within the month. The minimum investment is $50,000.

Garret/Galland Research

Garret/Galland Research

Investor returns also continue to improve:

Garret/Galland Research

Garret/Galland Research

How to Get Started

Based on our research, here is our recommendation on the best way to get started in marketplace lending.

While Lending Club offers higher returns on high-grade loans, Prosper offers much lower default rates across all grades. Each platform can earn investors outsized returns, so you should follow a key principal of MPL and diversify your investments across both platforms.

Free Report Reveals: How to Join the P2P Lending Revolution and Earn Yields of as Much as 10.39%

Grab our free report, Welcome to the Bank of You, and learn everything you should know about P2P lending to get started. Click here to download.

The 4 Best P2P Lending Platforms For Investors In 2017 -- Detailed Analysis (2024)

FAQs

Which is the best P2P lending platform? ›

List of the Best P2P Lending Platforms In India
  • LenDenClub.
  • CRED Mint.
  • Finzy.
  • Lendbox.
  • Faircent.
Apr 2, 2024

What is the largest P2P lending platform? ›

Overview: LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans.

How many P2P platforms are there? ›

As of January 2022, the Reserve Bank of India (RBI) had registered 25 non-banking financial companies (NBFC) to run peer-to-peer (P2P) lending platforms. Hosting nine such companies, Mumbai was the P2P-hub of India that year.

Is P2P lending platform legit? ›

Is peer-to-peer lending safe? P2P lending can be riskier than traditional lending. That's because there's a higher risk of default, so lenders are more likely to lose money. In exchange for the additional risk, however, P2P lenders usually charge a higher interest rate, which can help offset the risk of losing money.

What are P2P lending platforms? ›

Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers.

Is P2P lending high risk? ›

The main peer-to-peer lending risks are: Yourself (psychological risk). Not enough diversification (concentration risk). Losing money due to bad debts (credit risk).

What was the most popular P2P service? ›

One of the most popular P2P services in the world, PayPal is ideal for personal money transfers and online payments.

What is the future of P2P lending? ›

Despite these challenges, the future of P2P lending platforms is bright. Here's a glimpse into what the coming chapters might hold: Artificial Intelligence (AI) and Big Data: AI and big data analytics will play a key role in improving credit scoring and fraud detection, making P2P lending more secure and efficient.

Who bears risk in P2P lending? ›

Lenders face the risk of losing their money if the borrower defaults on the loan. P2P loans can offer lower interest rates for borrowers with good credit and high returns for investors.

Why is P2P banned? ›

P2P networks are often used to illegally download and distribute copyrighted material, including music, movies, software and games.

How can you lose money using P2P apps? ›

It's also important to know that, even though they may be associated with your bank account, no fraud protections exist on P2P apps. Once you press send it's virtually impossible to get your money back. Impersonation scams: Criminals often persuade victims to send money by pretending to be someone they're not.

How many Americans use P2P? ›

49 percent of U.S. respondents answer our survey on "Peer-to-peer payments" with "Using a direct money transfer service (e.g., PayPal)". The survey was conducted in 2023, among 10,048 consumers.

How profitable is peer-to-peer lending? ›

This means a solid portfolio of P2P loans can generate a steady stream of passive income. Higher Yields – Without question, the single most attractive aspect of P2P lending for investors is the potential for higher yields. A carefully curated portfolio of loans can potentially earn 10% annually or better.

Do you need a license for P2P lending? ›

56 However, even when working with a funding bank, P2P lenders may need additional state licenses for certain services and loan management. 57 The use of bank partnerships to circumvent state licensing requirements has been the subject of legal and regulatory scrutiny.

Who benefits from P2P lending? ›

Finally, P2P lending provides a variety of benefits to both lenders and borrowers, including access to lower interest rates, increased lending opportunities, better returns for lenders, increased transparency and control, reduced default risk, increased financial system diversity, and convenience and accessibility.

Is P2P lending profitable? ›

Monthly Income – Investors are paid every month when borrowers make payments on their loans. This means a solid portfolio of P2P loans can generate a steady stream of passive income. Higher Yields – Without question, the single most attractive aspect of P2P lending for investors is the potential for higher yields.

What is the minimum credit score for peer-to-peer lending? ›

Compare the best P2P lending
INTEREST RATESMIN. CREDIT SCORE
Prosper6.99% to 35.99%560
Avant9.95% to 35.99%$5,000 – $40,000
Happy Money11.72% to 17.99%640
Upstart7.8% to 35.99%300

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