Peer-to-peer or P2P lending platforms ease the process of debt financing by allowing people to borrow and lend money without a financial institution. It is way faster and cheaper than any bank.
Here is an in-depth, detailed analysis of the top three P2P Lending platforms to invest in this 2018.
1. Prosper Loan Marketplace, Inc.
Prosper was the very first P2P lending company in the US. Their investors have helped fund about $11,663,465,463 since 2006.
The platform has tremendously grown since its start. It now has over 250,000 members. They have reported that 83.5% of their active investors have received returns that even exceeded their expectations.
Accessibility
Prosper is available to investors in all states, including District of Columbia, except Alabama, Arizona, Arkansas, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, and Vermont.Loan Interest And Return Rates
They have loan interest rates ranging from 5.99% up to 36%. Prosper has a slightly higher rate compared to other lenders, but they are one of the few who allows borrowers with low credit scores.
They base their interest rates on credit information such as available credit, number of inquiries, recent delinquencies and credit card usage.
Investment returns vary according to the Prosper loan rating ranging from AA or lower risk with the lower return of 4.07% and HR or higher risk with the highest return of 11.68%.Investment Platform
With the Automated Quick Invest, investors can put their money to work very quickly. It is a great feature which helps investors to keep their money fully invested.They would only have to choose criteria, such as loan grade and others.
Investors only need 100 notes or $2500 to be properly diversified. This amount is lower compared to other lending platforms. Each note requires a minimum of $25, but since Prosper doesn’t have fixed increments, it can be any amount past that.
For investors who don’t like to manage their investments, Prosper has a Concierge Service. This service allows investors to provide the amount on which interest rate they want to invest in; then Prosper will take care of the rest. It starts at $2500 with no other additional fees attached to it.- Borrowers And Default Rates
Prosper’s borrowers have an average FICO score of 710, versus the usual 695 in the US. The average annual income of their borrowers is $93, 043, compared to a typical $72, 641.
With Prosper, you get access to an extensive and detailed, borrower profile compared to other lender platforms. Money lenders can get access to loan histories of borrowers who have previously used Prosper. This feature allows them to review if a borrower has a good standing loan history with Prosper.
Prosper had dropped its default rate since they had changed their risk model and underwriting in July 2009. Since then, their default rate had dropped to 3.6 in 2014.
2. LendingClub Corporation
Renaud Laplanche founded the LendingClub in 2007. He was a premier player in the P2P lending space. His company is a huge entity in the online lending marketplace, whose main goal is to connects lenders and borrowers.
LendingClub has over 150,00 investors, 2 million borrowers and $33 billion loan investments.
Accessibility
LendingClub is available to new investors in all states, including the District of Columbia. However, the states of Alaska, New Mexico, North Carolina, North Dakota and Pennsylvania are only available via FolioFN which is a trading platform used by LendingClub.
Loan Interest And Return Rates
Their interest rates range from 5.2% up to 28.99%. They take into account the borrower’s credit report information such as FICO score, number of recent credit inquiries, length of credit history, the total number of open credit accounts, revolving credit and others.
With this formula, most borrowers end up paying higher rates for the higher loan amount and longer term.
When you invest in the consumer credit asset class, LendingClub will provide 4% to 6% solid returns and monthly cash flow. 99% of investors with over 100 notes saw positive returns to their investments.
Investors receive the payments for the principal and interest, together with monthly cash flow which can amount from 2% up to 5%, as the borrowers repay their loans.Investment
In LendingClub, they will provide you with three options when you want to invest in a semi-automated way. You can choose from High, Medium and Low-risk loans.
If you prefer LendingClub to automate your investment fully, you can get a PRIME account. You would only need to specify an interest rate, and then the system will take over from here. The LendingClub PRIME has a minimum investment of $5000 and a one time fee of 0.8%.
The minimum investment amount is $25 per note, and other amounts are only available in $25 increments. You need a minimum of $1000 to get an account and properly allocate your investment.Borrowers And Default Rates
It is important for borrowers to have a decent credit before obtaining a loan from LendingClub. The company uses Transunion to pull credit data and allow borrowers with a minimum credit score of 660.
The LendingClub had a default rate of 3.2% way back in 2010, but it had since raised to 8.7% in 2014.
3. Upstart Network Inc.
Launched by ex-Googlers in 1024, Upstart has created more than $1.7 billion of loans. This lending platform has been very popular among younger generations of borrowers who don’t have a long credit history. It is mostly because Upstart’s underwriting model goes beyond FICO scores.
Their goal is unique in their own way as they seek to provide superior loan performance and improve their borrower’s access to credit.
Accessibility
Upstart is available to any accredited or licensed money lender in the US. The accredited investors are open to investing in all states as they only are subject to federal securities regulations.Loan Interest And Return Rates
The average Upstart loan interest rate ranges from 11% to 15%. Loan amounts can range from $1000 to a maximum of $5000. Loan terms may last three to five years.
There is no minimum income, minimum credit history or maximum debt-to-income ratio. But, Upstart does not accept borrowers who have bankruptcies or public records on their report. Or those who have six or more credit inquiries on their credit report for the last six months. They also prefer borrowers who don’t have a debt ratio of 16%.
Upstart offers their lenders return rates around 7.4% across all grades with 97.6% of investors earning positive IRR. Investors earn on average as much as 5.6% to 9.2% across all loan grades.Investment
To invest with Upstart, you need to be an accredited investor. It means you need a have a net worth or joint net worth exceeding $1 million, excluding the value of your primary residence. And, an annual income higher than $200,000 in the last two years.
One of the major difference of Upstart compared to other lending platforms is that they do not charge any investor fees. Also, if a borrower defaults, Upstart refunds investors with the origination fees in the loan.
However, in Upstart, a moneylender has the minimum capability to pick loans. You would be able to view several filter criteria, but after moving forward, there is a disclaimer warning you that they would no longer support additional filters anymore.
The only filter you can only adjust is the risk rate, from AAA to D. After that, your investment would be entirely automated.Borrowers And Default Rates
Upstart borrowers’ FICO Score average is around 688 and weighted average income of $84,466. The 75.8% of which are college graduates. The most common reason, which makes up to 75% of the borrowers are looking to refinance their credit cards.
According to Upstart, about 91% of their loans are either current or paid in full. They allow borrowers not based on FICO scores alone but also consider their educational and employment qualification, such as degrees attained, school or university they attended, the area of study, occupation, and employer.
This lending model helps them to develop a statistical data of the applicant’s financial capacity and personal propensity to repay. However, this model also generates a rate of 5% default of principal.
Last Words
P2P lenders platforms are a lot of help to borrowers and lenders. Investors generate revenue from a portion of the interest which borrowers pay on loans. On the other hand, borrowers benefit from easy access to funds.
It would pay to be diligent with your work in finding the best P2P lending platform and planning a strategy which can generate more revenue for your investment.