Comparing Lending Club with Prosper

The following information may help you in your peer-to-peer investing decisions.
Prosper Logo

The Comparisons

A useful comparison of Lending Club and Prosper would be to invest the same amount of money in each company and review the progress a few months later. And that is just what I did. However, an exact comparison was not possible because first Lending Club and then Prosper were in quiet periods. So while my Lending Club loans span only four months, Prosper’s cover eight months. Also my Prosper loans cannot be re-invested because of their quiet period whereas Lending Club has no such restriction. Note too that Lending Club tends to have lower interest rates thus giving a lower return.

The Numbers

Lending Club Prosper
Total investment $4,100.00 $3,000.00
Date of first loan 28 Oct 2008 09 Jun 2008
Active loans 115 34
Interest rate — lowest 8.00% 11.50%
Interest rate — highest 15.37% 30.00%
Interest rate — average 11.34% 17.46%
Net interest $158.54 $422.29
Loans paid in full 5 5
Late loans — number 0 1
Late loans — grade N/A B (1)
Late loans — value N/A $74.28
Loans in collections — number 3 6
Loans in collections — grade B (1) and C (2) AA (4); A (1); B (1)
Loans in collections — value $161.07 $576.47
Cost of auctions $60.72 N/A
Profit (interest minus losses) -$63.25 -$228.46

Table last updated: 16 July 2009

In the table Net interest includes late fees, collections, and administration fees. I have counted Loans in collections as well as Late loans. However, there have been some small collections made and frequently loans that are late are caught up.
Lending Club

The Conclusions

Even though Prosper has the higher earnings its losses are greater. Bear in mind the loans on Prosper have been running twice as long as my Lending Club loans, hence more opportunity for loans to fall behind. My losses on Prosper have been aggravated by my having one loan of $200 in collections and the rest that are behind all at $100. The idea is to invest no more than $50 a loan. My mistake. Over time I believe my Prosper profit will go into the black but I see Lending Club giving a better return. I have thought for awhile that Lending Club does a better job of rating the risk on the loans and these results tend to confirm it. Consider that four out of five of my Prosper late loans are rated AA and the remaining loan is rated A. One would never have thought that these higher rated loans would be the first to cave.

When Prosper reopens I probably will not resume investing but will in the near future pick up the pace with Lending Club. If you are going to try peer-to-peer investing plan on losing some of your money. But with a little more care than I exhibited you should still make a better return than with a Certificate of Deposit.

Looking over these numbers what do you conclude?


7 Apr 2009 Updated the table.
23 May 2009 Since I last updated the table I have added another $1,100 to my Lending Club account. Although small, Lending Club is now reporting a loss. In a change of direction, today I put up for auction five of my $100 loans. It is time for me to move out of peer-to-peer lending and put more into my FDIC insured rewards checking accounts that return a steady 5%.
16 Jul 2009 Updated the table. Late in May I liquidated all my Lending Club holdings except for the 3 loans in collections. Over a period of three days I placed and auctioned off all the loans. I paid 1% commission on the selling price. I also discounted the price by 1/4%, 1/2%, or 1%. They were purchased very quickly because almost all the good loans are not discounted. The total cost to sell my loans of $4,048.13 was approximately $60.72. This makes early withdrawal very fast and relatively painless. I was happy with the result.
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YadYap Peer-to-Peer Payday Loans

YadYap website.
YadYap, payday spelled backward (how’s that for a rickety but innovative name), is the first people-to-people lending platform specifically for the payday loan industry. YadYap is looking forward to an official launch soon. It is interesting that I should hear about YadYap (thank you Jared) so soon after I wrote that “there will be many peer to peer lending websites.”

The Inspiration for YadYap

According to their website, YadYap was inspired by three characteristics of the payday loan industry:

  1. The significant need for short term loans.
  2. The controversy over lending rates charged.
  3. The lack of borrower representation in the market.

How do Borrowers Benefit from YadYap?

  • Instant loan approvals.
  • Funds quickly deposited to their bank account.
  • Lending rates determined by the free market through a competitive auction.
  • Good repayment performance is rewarded with lower interest rates and loan fees.

How do Lenders Benefit from YadYap?

  • Provided with pre-screened loan applicants.
  • Credit / payment history is tracked resulting in a YadYap risk rating.
  • YadYap handles all documentation, fund transfers and loan administration.
  • Lenders benefit from both monetary and social returns on their capital.
  • YadYap takes the inefficiencies out of the market.

The biggest advantage of YadYap is the almost instant liquidity that comes from offering short term 2-4 week payday loans. Unlike Prosper and Lending Club, no secondary market is needed to achieve liquidity for lenders. When YadYap opens, this may prove to be a significant advantage for them. And maybe there will be a few less “Payday Loans Here” signs on main street as business migrates to the web.


5 Mar 2009 I removed my instant liquidity link to YadYap’s blog. All it returns is a WordPress message that reads:

This blog has been archived or suspended for a violation of our Terms of Service.

Not a good sign. I wonder if they need a payday loan to tide them over?

12 Mar 2009 Restored my instant liquidity link to YadYap’s blog, which has changed location and is now called [link no longer works]. Set aside money for a payday loan to YadYap through their platform once they launch.
19 Oct 2010 Yadyap launched. In this first phase, all lending will be done by YadYap LLC, their affiliates, and other institutional lenders.
25 Feb 2012 ConnectFund link no longer works, replaced all references to it with this bracketeted phrase: [link to longer works].

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