Lending Club over Prosper

I opened accounts with both Prosper and Lending Club peer to peer (P2P) sites about two months ago. These are regular accounts meaning the interest earned is taxable. I also bought and sold some notes and presumably there will be capital gains or losses to report. I was interested in knowing what type of tax documents I would receive.

My long term interest was in having this type of investment in a rollover IRA to avoid the tax issues. But since I was inclined to recommend P2P to my friends and family I wanted to understand how they worked and the the tax implications.

It also gave me a chance to evaluate the two choices and determine where my IRA would be opened. I started with Prosper and got off to a bad start. The process took longer than expected. Prosper’s response to questions usually took several days.  Lending Club’s responses have been timelier.

I also found that I liked Lending Club’s web site more than Prosper’s.  I really can’t quantify the differences. Lending Club offered some download options that I liked. My long term plan involves owning about a thousand notes. Downloading data would be important if one wants to manage and analyze your portfolio.

I suppose one could just use the automatic investment plans provided and not even worry about following individual notes. Realistically this is what we’ll likely do.

When payments were made on Prosper notes, my account was not updated for six to ten days after the payment date. Meanwhile, Lending Club payments were posted to my account five days after the payments were made. In both cases, the recorded payment date was the payment due date. They may have been paid earlier.

Trades settled quicker on Lending Club than on Prosper. I offered 3 notes for sale. Two were sold the next day and the money was immediately in my account.  The other sold 3 days later.  I offered 10 notes on Prosper, 5 at fixed price and 5 at auction (Lending Club did not offer this option). There were no offers on the auction notes. When the Prosper notes sold, they did not settle for a week.

Lending Club is the bigger of the two. This means more notes to choose from. Finally, Lending Club is now a public company so will  be more likely to be around.

All of this added up to selecting Lending Club as the P2P vendor I will use. I have opened a Lending Club IRA. I have emptied the Prosper account and am in the process of closing it.

I will follow up with the tax reporting in a few weeks. Follow me on Twitter @billlanke to be notified when I add new posts.