Money Under 30

Social Lending Networks Compared

If you, like most Americans, are fed up with the banking system, then social lending might be for you. I believe social lending is the way of the future for both borrowers and investors. And today, when bank savings rates are tiny, the stock market is up and down, and few banks are making loans to even well-qualified borrowers, there has never been a better time to look at social lending networks like LendingClub, Prosper, and Pertuity Direct.

Social Lending Defined

What is social lending? In a nutshell, social lending is a bank without the bank. Individuals like you and I make loans to others (or get loans from others) directly through the network. One person may get a $5,000 loan from 100 investors who each front $50. As the borrower pays back the loan, each investor gets their principal plus interest back and the social lending network takes a small cut of the interest for acting as the intermediary and servicing the loan (billing the borrower and distributing payments to investors).

Social Lending Networks Compared

Today, there are three big social lending networks: LendingClub, Prosper, and Pertuity Direct. This comparison of social lending networks will focus on LendingClub and Pertuity Direct, although you can also read more about my personal experience with Prosper.

LendingClub

LendingClub offers borrowers personal loans of up to $25,000 over three years (36 months) with rates starting as low as 7.88%. As a lender/investor, you can earn returns on your money ranging from 6.69% to 19.37%. To qualify as a borrower at LendingClub you need a credit score of at least 660 and meet other credit requirements. Although anybody can open a free lending account at LendingClub and browse available loans, only investors meeting specific requirements can fund loans due to SEC regulations. This isn’t the case with Pertuity Direct.

When you invest with LendingClub, you actually choose which loans you want to fund. You can select loans that only meet certain credit criteria, are at a certain interest rate, or that are to be used for a specific purpose. That way, you have total control over how much risk you take (and how big of a return your could earn). For more, read my LendingClub review.

Pertuity Direct

Pertuity Direct is also accepting new borrower and lender applications. Borrowers must also have a minimum credit score of 660. But Pertuity Direct works differently for lenders: Rather than selecting which individual loans investors want to fund, lenders with Pertuity Direct invest in a mutual fund called the National Retail Fund. This fund is a portfolio of all of the loans Pertuity Direct generates. That way, you’ll earn an average return rather than deciding for yourself which notes to invest in. It’s less risky, but may produce a lower return than you could generate at LendingClub.

Pertuity Direct’s investment model takes less time to set up, and is more liquid than investing with Lending Club. That’s because when you invest in notes at LendingClub, you receive your principal and interest back each month the borrower makes payments until the note is paid off over three years. At Pertuity Direct, you can withdraw your principal and earnings at any time (just as you would with any mutual fund). For more, read my Pertuity Direct review.

Is a Social Lending Network for You?

Social lending provides great alternatives to both regular bank loans and credit cards for borrowers and high yield savings accounts and stocks for investors. If you have good credit but can’t get a traditional credit card or are looking for a way to earn more than the 2% interest savings accounts are paying these days, consider giving either LendingClub or Pertuity Direct a try today.

Related Posts

• Pertuity Direct Review
• Could Social Lending Provide a Way Out of the Credit Crisis?
• How to Lend Money The Smart Way
• Zopa Loans Redefines Personal Loans Using Social Finance
• How to Open a Lending Club Lender Account

What's Next?

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