Just over a week ago, Prosper got permission from the SEC to re-launch their lending platform. For those that don’t follow this sort of thing, Prosper is a peer-to-peer lending company similar to Lending Club, and they’ve been in an SEC mandated “quiet period” since October 2008 while they registered with the SEC.
Similar to Lending Club, Prosper now has a secondary market for lenders who wish to sell their loans to other investors. This is a big step forward for them, as it significantly increases the liquidity of investments.
One interesting aspect of the Prosper business model is that the rates on loans are determined via investor bidding using an auction-platform. While I haven’t done it myself (yet!) this sounds a bit more involved than the situation at Lending Club, where rates are set based on the risk profile of the borrower.
Perhaps the biggest (apparent) negative is that the average return of their lenders is just 7.06%, which pales in comparison to the average rate of 9.61% being earned by Lending Club investors. While it’s possible that the higher returns at Lending Club are made possible by investors taking on greater risk, it’s worth noting that they actually require a higher minimum credit score for borrowers as compared to Prosper.
Ultimately, the proof is in the pudding, and I have yet to try out Prosper firsthand. That being said, my initial impression is that Lending Club is a better bet, at least for me. I’ll update as soon as I know more.