July 26, 2009

Most of us can't loan money on Prosper or Lending Club

I've heard of Prosper and Lending club for a while. Both are peer to peer lending institutions. If you're a lender you invest your money and it is loaned to individuals for various reasons. The benefit of these systems is the lender gets a relatively high return and the borrower gets a relatively low rate. I've thought it would be interested in joining to try it out. I can't lend money on Prosper or Lending Club and you probably can't either.

Prosper and Lending Club are both limited to certain states and they have income and net worth restrictions.

Looking at Prosper:

Prosper is only available in 16 states. From their website : "Prosper is currently available to lenders in the following states: California, Colorado, Delaware, Georgia, Hawaii, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Washington, Wisconsin and Wyoming. Also, Prosper is always working to make lending on Prosper available in more states, so please check back. "

The graphic on the right shows the states that Prosper lenders can live in.

Those states represent about 115 million people or under 40% of the total population. That means that over 60% of Americans aren't in states that are allowed to be lenders on Prosper.

Plus for some states there are extra rules for Prosper:
If you live in Alaska, Idaho, Kansas or Pennsylvania then you have to have 1) income of $70,000 and net worth of $70,000 or 2) at least a net worth of $250,000 and you can't put more than 10% of your assets into Prosper.
For California you can't put more than 10% of your net worth into it and if you invest over $2500 then you need 1) income of $85,000 and assets of $85,000 or 2) net worth of $200,000.

Those rules apply to about 54 million people and exclude about 27 million people. I'm making a rough estimate that about half the people have incomes and net worth below those minimums.

In total 115 million people live in states that are allowed to lend on Prosper. The state specific income and net worth minimums exclude around 27 million of those people. That leaves about 88 million Americans who can actually lend money on Prosper. In total only about 30% of Americans are allowed to lend money on Prosper. So chances are you can't.

Lending Club is a similar situation:

From their website, you have to be in the following states:
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Those states are home to about 154 million Americans.

Lending Club also has income requirements but theirs appear to apply to all states. They require 1) $70,000 income and $70,000 net work or 2) $250,000 net worth. If you're in California they require 1) $100,000 income and $100,000 net work or 2) $250,000 net worth.

The income restrictions would likely exclude half of the population. That leaves about 77 million Americans, or about 25% of the population, who can participate in Lending Club as lenders. About 75% of Americans are not able to be lenders on Lending Club due to state of residence or income limitations.

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