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Marketplace lending sort of exploded over the course of the past year Initially there were essentially three options –Lending Club, Prosper and Funding Circle. However, new marketplace lenders have been cropping up recently like crabgrass. In addition to the three noted above, there are Peerform, Upstart Lending, SoFi, CircleBack Lending, Pave, Borrowers First and probably others we simply don't know about.
Lending Club, Prosper and some of the other marketplace lenders operate kind of like banks in that they will loan money to almost anyone for practically any purpose. Some of the other lenders tend to be more specialized. For example, SoFi provides loans only to graduates of Title IV universities and that have reasonably good credit ratings. All of the loans made by Borrowers First come not from individual lenders but from just one bank so it says that it's able to qualify people and grant loans much quicker than some of the comparable marketplace lenders. And Funding Circle provides only business loans up to $500,000.
While there are many advantages to marketplace lending versus traditional lending it's important to understand that it's relatively new and totally unregulated. Banks provide safety in the fact that most belong to the FDIC and provide the same consumer protection regulations as Truth in Lending. In comparison, marketplace lenders offer no consumer protection. None have failed to date but this doesn't mean there couldn’t be a failure. And if one does occur nobody knows what will happen to either its lenders or borrowers.