As the largest peer-to-peer lending network, Lending Club is a solid choice for anyone seeking a personal loan
Introduction to Lending Club
From business and personal loans to auto refinancing and loans for medical procedures not covered by your insurance plan, Lending Club has transformed the lending market thanks to their simple, low-cost, and convenient process for both borrowers and investors of the modern, digital age.
Their secret?
Lending Club moved the whole loan process online and created a peer-to-peer lending network where investors back the loans of qualified borrowers and earn interest and returns as the loans are paid off every month.
The ease of use, quick process, and potentially better-than-average terms makes Lending Club a solid choice for borrowers. However, not everyone will meet the requirements which includes a minimum credit score of 600.
Keep reading to see if Lending Club makes sense for your financial future.
What is Lending Club?
"A typical bank," Matthew Zeitlin explains for The Daily Beast, "takes in deposits and then lends out money, and keeps the difference between the interest rate paid to its depositors and the rate paid to its borrowers."
Lending Club is different; they connect lenders to borrowers in what's known as a peer-to-peer network.
It was started by Renaud Laplanche and launched in May 2007 as an application on Facebook. After receiving additional funding from venture capitalists, Lending Club became a full-fledged online peer-to-peer lending network.
Services Offered
Lending Club specializes in providing loan quotes within minutes without affecting your credit score. Loans are offered in four categories and may have specific eligibility requirements.
Once your application has been approved, investors will fund your loan and you'll receive the money you need. There's no penalty for paying off your loan whenever you want.
Personal Loans
Lending Club offers personal loans up to $40,000. If approved, your loan will have fixed monthly rates so your payments will never change or increase for the life of your loan.
Auto Refinancing
Was your credit score down in the dumps when you purchased your car?
An auto-refinancing loan from Lending Club may be right up your alley.
Auto refinancing is a surefire way to lower your monthly payments or reduce the total amount of interest you'll be paying for your car.
To qualify for a Lending Club auto-refinance loan, your car must be a personal use automobile and not an RV, motorcycle, commercial, or salvaged vehicle. It must be less than 10 years old and have fewer than 100,000 miles.
Your current car loan must have an outstanding balance between $5,000–$50,000. It needs to have been initiated at least three months ago and have 24+ months of remaining payments.
Business Loans
Whether you need the cash to purchase inventory or equipment or plan a whole new remodel, you'll have a repayment term that's between one and five years so your monthly payments are smaller than those of other lending companies.
Loans are available up to $300,000 and you could receive the funds within a week.
To find out if you're eligible for a business loan, keep in mind that Lending Club likes to see that you've:
- Been in business for at least 24 months
- Acquired at least $75,000 in annual sales
- Avoided recent bankruptcies or tax liens
- Owned at least a 20% stake of the business and have at least fair or better personal credit
Patient Solutions
There's nothing more frustrating than when your healthcare provider doesn't cover a procedure you really need, especially with today's ever-increasing insurance premiums.
Let Lending Club support your personal journey and help finance procedures relating to fertility, hair restoration, weight loss surgery, and restorative, cosmetic, or orthodontic dental care.
How Does Lending Club Work?
Borrowers can apply for a personal, business, or medical loan, or refinance their existing auto loan, using Lending Club.
While they can't see personal identifying details, they can see facts such as how much you need, why you need the loan, and how risky your loan is to fund (based on your credit and financial history).
The risk is determined by factors like your loan amount, credit history, and other factors such as your debt-to-income ratio. Based on this, Lending Club assigns your loan a letter grade from A (least risky) to G (most risky).
Within each letter grade are five numbered sub-grades (A1, A2, A3, etc.). So for example, A1 is the least risky type of loan whereas G5 is the most risky.
These grades correspond to how Lending Club sets their borrower interest rates. Low-risk loans enjoy lower interest rates, origination fees, and APR. The riskier Lending Club deems your loan, the higher these rates will all be.
Investors and financial institutions simply browse these loan listings and choose which ones they want to invest in.
Borrowers typically have access to their loan money in one week and enjoy lower interest rates while lenders make money from the interest being paid back on the loans they chose to contribute to.
Lending Club's interest rates are typically lower than those you'd find at your bank or credit union because they don't have any brick-and-mortar offices (cutting down on expenses) and they reject around 80–90% of their applicants (so they minimize their loan defaults).
Bypassing the banks and going with a P2P loan is beneficial when you:
- Need a loan sooner rather than later
- Have been denied by a traditional lender
- Have impeccabIe credit
Who are the Lenders in Lending Club?
Traditional banks rely on their customers' deposits to fund the loans of their other customers.
The Lending Club community of lenders backs the loans given to their peers and they see a profit for doing so.
As long as you meet their investor eligibility criteria, Lending Club will allow anyone to become an investor/lender.
Here's how investing works:
Each loan is divided into many separate pieces called Notes.
Investors can purchase Notes in $25 increments.
Each Note gives the investor a portion of the loan repayments of principal and interest, according to Lending Club.
This means investors can fund pieces of several loans to diversify their portfolios.
This also minimizes investment risk if a borrower should default and stop paying back their loan.
Investors don't have to assume the risk of funding an entire loan when they can contribute as little as $25.
You can literally invest in four different loans—all ranging in risk—with just 100 bucks.
Lending Club Notes have historically earned annual returns between the 5% and 7% range.
That's not bad considering experts say you'll be lucky to see 4%–5% returns in the "era of diminished stock market expectations," Heather Long writes for CNN Money.
Lending Club investors receive between 2–5% of their total investment back in cash as borrowers make their monthly loan payments.
They can cash out or keep reinvesting their money for new loans.
Here's How to Use Lending Club's Services
You don't want to miss out on the competitive interest rates for the loan you desperately need.
Here's how to get started:
First, Complete the Application Process
Applying for a loan online with Lending Club will take less time than microwaving your pizza snacks.
Simply follow these steps:
Fill out an application on www.LendingClub.com
Answer a few basic questions about how much you need a loan for, what the money will be used for (i.e., credit card refinancing, home improvement, etc.), and what your credit score is like.
Then you'll be asked for details like your name, address, and yearly income.
A soft pull will not affect your credit score.
Checking your credit allows Lending Club to determine your interest rates quickly based on the credit rating they assign you.
Choose the loan you like best
If you're approved, Lending Club will show you multiple loan offers with different terms, interest rates, and monthly payment amounts.
Browse these and choose the one that fits your lifestyle best.
Wait for review and approval
Lending Club will review your application to make sure you're a qualified borrower.
They'll verify your banking information and credit history by accessing online databases with your info.
You can check your Account Summary online anytime to see the status of your loan.
Get backed by investors
The details of your loan will be posted on the Lending Club platform for investors and institutions to check out.
They'll see your loan grade, the reason for your loan, and the monthly returns they'll stand to gain before they decide to invest.
Receive your cash and start paying back your loan
Once enough investors back your loan, the money will be automatically deposited in your bank account within four business days.
You'll start to assume fixed monthly payments to pay off your loan.
Bonus: There's no penalty for paying off your loan whenever you want.
Lending Club makes it super easy to pay back your loan as the funds are withdrawn automatically from your bank account starting the following month.
As you can see, the whole process is fast and super convenient.
Most borrowers receive funds in as soon as one week.
Before you start fantasizing about what you would do with all that cash in your account, let's go over Lending Club's eligibility requirements.
Eligibility Requirements
Lending Club uses complex algorithms to determine borrower eligibility and behavior.
Though Lending Club does not publish their eligibility requirements, they admit to rejecting 90% of their applicants.
This may seem extreme, but it lowers the risk for investors if Lending Club assures them of high-quality borrowers ahead of time.
This decreases the amount of loans in default, which would otherwise tank investor portfolios and collapse the whole P2P system.
Lending Club uses the following criteria to determine borrower creditworthiness:
- Credit score
- Credit history
- Desired loan amount
- Borrower's debt-to-income ratio
Lending Club rejects applicants with credit scores under 600.
However, if you're above this threshold you should apply for a loan and see what happens.
What are the Fees and Penalties?
Lending Club charges personal loan borrowers an origination fee depending on their loan grade.
A and B loan grades have the smallest origination fees while loans C through G pay the 6% rate.
A one-time origination fee is taken out of the loan proceeds for business loans.
You'll never face a prepayment fee with any loan, which means you can pay off your loan sooner and cut down on the total interest you have to pay.
As far as penalties are concerned, don't be surprised to see:
- $7 processing fee if you want to pay your monthly payment with a personal check instead of letting Lending Club deduct the payment from your bank account
- $15 or 5% of your monthly payment (whichever is greater) for a late payment
- $15 for an unsuccessful payment (like if you don't have the funds to make your payment)
Investors will be charged a service fee, which goes towards maintaining the online accounts, collecting payments from borrowers, and distributing these payments to the loan's corresponding investors.
The fee will be equal to one percent (1%) of the amount of any borrower payments received within 15 days of the payment due date.
If borrowers miss a payment, investors do not have to pay a service fee.
Investors are also on the hook for a collection fee if their loan becomes delinquent.
After Lending Club goes through the collection process, the collection fee is deducted from any amount recovered. It may be:
- Up to 35% of the amount recovered if a collection action must be taken with respect to a loan and no litigation is involved, or
- 30% of hourly attorneys' fees, plus costs, if litigation is involved.
A collection fee is not charged if Lending Club is unable to collect payments.
How User-Friendly is Lending Club's Services?
Lending Club's services are intuitive and straightforward so you can complete the whole application process right from your computer or favorite mobile device anywhere you're connected to the internet.
Investors can set their portfolios on autopilot and have Lending Club invest in loans that meet certain criteria.
Or they can opt for Lending Club's easy-to-use manual investing tool to filter for specific loans they want to invest in.
Choose your loan terms, loan grades, and interest rate, or choose from a wide selection of filters to customize your portfolio exactly to your standards:
Lending Club makes it stupid simple to borrow and invest all from their online platform.
How is the Customer Service?
Lending Club has an A+ rating from the Better Business Bureau and hundreds of positive reviews thanks to their outstanding Customer Service.
To receive an A+ from the BBB—which is their highest honor—a company has to advertise honestly, embody integrity, and make good faith efforts to resolve complaints in a timely manner and to the satisfaction of their customers.
Check out these reviews from Lending Club clients:
Is Lending Club Safe and Legit to Use?
Lending Club is a fully-compliant American lender registered with the SEC.
This means it must publish detailed information about the rates associated with their loans.
This provides greater transparency for clients.
You even can browse their publicly available spreadsheets about prospective borrowers (though this information will be anonymous).
Since Lending Club completes all their transactions online, they assure their clients that they never sell, rent, or distribute the information and data they collect to third-party websites for marketing purposes.
Unlike applying for loans with other companies, this means you won't have to dodge calls and flyers in the mail from random companies that purchased your information.
Receiving the highest grade awarded by the BBB (A+), Lending Club is totally safe and legit to use.
They've even been featured in respected online publications such as CBS News, CNN Money, and TechCrunch.
What are Lending Club's Strengths?
Lending Club fills a need in the American lending marketplace for borrowers who don't want to deal with the hassle of (or have been denied by) the big banks and lending institutions.
Here are Lending Club's top three strengths:
You need a minimum 600 credit score to borrow
Since Lending Club has such strict borrower criteria—including a minimum 600 credit score—investors know the pool of well-qualified borrowers is less likely to default on their loans.
The banks and major financial institutions have to budget for a percentage of their loans going into collections.
They then have to charge their other clients higher interest rates to cover the costs of these loans in default.
Investors can feel confident knowing Lending Club borrowers know how to maintain their financial accounts as reflected in their good credit scores.
This also ensures lower interest rates for borrowers.
You can be an investor
Investors make up the backbone of the Lending Club concept and directly fund the P2P network.
Lending Club allows investors to pick and choose the best loans to contribute to with as little as $25.
After you pay off your Lending Club loan, you can apply to become an investor and help others while you make a profit.
What are Lending Club's Weaknesses?
Despite all the positives associated with Lending Club, there are a few downsides, such as:
You may not meet their strict borrower criteria
In an effort to cut down on the number of loans that default, Lending Club likes to keep their borrower pool flush with high-credit scores.
They don't approve loans for people with FICO credit scores below 600.
Typically, the average Lending Club borrower has:
- A credit score well above average (think: 700 range)
- 15+ years of credit history
- A debt-to-income ratio under 20%
- An average yearly salary above $70,000
- No current delinquencies, bankruptcies, or tax liens
You should apply for a loan with Lending Club even if you don't meet all their eligibility criteria on the nose—the application process is totally free and the Lending Club algorithms may like what they see in your loan request and send funding your way.
Fingers crossed!
Some will experience high interest rates
Lending Club publishes the average interest rates for their previous quarter, which are currently:
- 12.61% for 36-month loans
- 17.28% for 60-month loans
- 14.21% for all loan terms
While these interest rates are low compared to interest rates from the major banks, certain borrowers could see interest rates as high as 35.89% APR for a 36-month loan.
Generally, higher interest rates correspond with riskier loans.
This means your credit score, debt-to-income ratio, or other financial factors used to determine your loan grade weren't deemed as safe to the Lending Club algorithms as those from other borrowers.
If your credit information suggests you're a lower credit risk, you'll receive an offer with lower interest rates.
To qualify for the lowest rates, you'll need:
- A high credit score
- A low percentage of total outstanding debt compared with your income
- A long history of credit with significant successful credit lines
To avoid high interest fees, follow these tips:
- Don't apply for the maximum loan amount Lending Club will offer; only apply for as much as you need and you'll be seen as less financially risky.
- Go with the 36-month (3-year) loan and skip the 60-month (5-year) option. You'll save two years worth of higher interest rate payments this way.
Verification process may take long
Even though the application process only takes a few minutes to complete online, Lending Club still needs to verify your information and evaluate your creditworthiness before you receive your loan money.
Lending Club will base their approval on a number of factors, including:
- Your credit score
- The information you provide on your loan application
- The financial data received from all three credit bureaus
- Information that predicts the likelihood that you'll make on-time monthly payments for the life of your loan
Lending Club says the entire application, approval, and funding process typically takes about seven days.
Once your loan is approved and backed by investors, your money is electronically deposited into your bank account.
It may take a few more days to have access to your funds depending on your specific bank.
Does Lending Club Run Your Credit Score or Affect It?
Lending Club will offer you loans based on a "soft" credit inquiry.
These checks of your credit history do not affect your credit score.
However, before your loan is completely processed, Lending Club may run a "hard" credit inquiry, which has the potential to lower your credit score by up to five points.
Lending Club needs to run the hard check to vet your personal financial information before releasing the funds of your loan to your bank account.
Frequently Asked Questions about Lending Club
Before you reach out to a Lending Club professional, check out the top four FAQ:
Final Notes
There's a reason Lending Club borrowers and investors are so happy: borrowers are offered interest rates much lower than those from a traditional brick-and-mortar bank and investors have the potential to earn higher returns than those playing the unpredictable stock market.
That's the beauty of a peer-to-peer lending network like Lending Club.
If you have the creditworthiness for a loan approval, you can pay off your high-interest credit card debt, inject new capital into your business, refinance that outrageous car loan, or finally fund the medical procedure you've been dreaming about.
When you can fill out an application online within a few minutes, why live with the high-interest monkey on your back instead of finally living debt free?
