Lending Club Review

Kimberly Rotter

Kimberly Rotter | Blog

Jun 04, 2014 | Updated Apr 27, 2016

Lending Club Personal Loans

Lending Club is an alternative financing source, another option for obtaining money, to compete with traditional banks and credit cards. Lending Club is a peer-to-peer lender that arranges for unsecured personal loans in amounts up to $35,000 with repayment terms up to 60 months. The money comes from investors and goes to qualified consumers who apply, just as they would for a bank loan.

What sets Lending Club apart from banks is that Lending Club is not exposed to the typical risks faced by banks, such as loaning out too much money based on investment forecasts that may or may not come to fruition. Lending Club only facilitates loans of actual dollars from people who have it to people who need it.

Interest rates on Lending Club personal loans range from 6.03% to 26.06%. The APRs for those rates vary, depending on the length of the loan. The full range of APRs is 6.78% to 28.69%.

Lending Club Business Loans

Since December, 2013, Lending Club also offers business loans of up to $100,000 at rates between 5.9% and 29.9%, with repayment periods of one to five years. The company plans to expand to loans of up to $300,000 in the foreseeable future.

Why Should I Choose Lending Club?

For borrowers, Lending Club terms are often much more favorable than comparable bank loans. Also, Lending Club might approve a loan application that a traditional bank rejects. The application process is simple, and approved loans are funded very quickly. Reviews from past borrowers are generally very positive.

How Does It Work?

  1. Apply online. Provide basic financial information, such as your approximate FICO score, debt-to-income ratio and annual income. The Lending Club website assigns a rating between A1 and G5, and then displays an approximation of the loans you will qualify for. Lending Club prequalifies online applicants by conducting a soft pull on their credit files. Using your name, address and birth date, Lending Club checks your credit in a manner that does not have any effect on your credit score.
  2. Choose the best loan. Compare the terms to those offered by a bank or credit card issuer and simply choose the best option. If Lending Club is the most attractive loan, proceed with a formal application.
  3. Complete the application. The formal application will be reviewed by Lending Club underwriters, who will consider your credit file (length of credit history, number of open accounts, usage and payment history), credit score, verified debt-to-income ratio and recent credit activity, including number of recent inquiries. Reports indicate that the minimum credit score to qualify is in the neighborhood of 660. Lending Club may ask you to submit various documentation to verify your identity and/or income.
  4. Watch for the funds. Approved loans are issued 14 days after the listing expires, provided the loan is at least 60% funded. If the loan is not fully funded, the loan will issue at the funded amount (except in Massachusetts). Borrowers who do not want to accept a partially funded loan must contact member support prior to the expiration of the loan listing. 99% of approved loans are fully funded within 14 days. Once issued, loan funds are deposited directly into the borrower’s bank account.

The entire process takes place online. Some have observed that the absence of a face-to-face meeting with a loan officer allows Lending Club to avoid any bias created by personal appearance, including skin color.

Below is a screenshot from the website displaying loan information for a prospective borrower:

Lending Club

How Much Does It Cost?

Personal borrowers pay a loan origination fee of 1.11% to 5.00%, depending on their loan grade (A1-G5). Business borrowers pay a loan origination fee between 1% and 6%. In both cases, the better the applicant and shorter the repayment period, the lower the fee. No other fees apply unless you make a late payment or the loan goes into default, or you choose to pay by check (payment by electronic funds transfer is free).

Is It Safe?

Any loan application can be cancelled without penalty anytime before the loan is issued. The loan may be paid off early with no penalty. Lending Club has an A+ rating from the Better Business Bureau, a Privacy Seal from TRUSTe, employs SSL encryption on its website and makes loans via an FDIC-insured bank headquartered in Salt Lake City, Utah. (Investors: the money is handled in a safe manner; investments themselves are not insured or guaranteed.)

Are There Any Downsides?

A borrower may not be able to afford to take the loan if it doesn’t fully fund. If the loan is for the purpose of credit card consolidation, the borrower may need to eliminate the credit card minimum payments in order to afford the payment on the new loan. Things get sticky if the borrower is left with multiple payments to make.

An ever-present downside to consolidation loans is that some borrowers cannot resist charging their credit cards right back up, left to face the loan debt and the new credit card debt. If there is any chance you might use your credit cards freely again once they’re paid off, don’t take a consolidation loan unless you close the credit card accounts the moment you pay them off with the loan funds.

Other downsides to Lending Club are comparable to the downsides to any other funding source. Some applicants will not be approved. Some loans or borrowers will not qualify for the best rates. Lending Club does not operate in Iowa, Idaho, Maine, North Dakota or Nebraska.

Is it A Good Deal?

Lending Club can offer many borrowers terms that are very competitive, and in many cases better than what the borrower can obtain from a traditional bank. The only way to find out if Lending Club is right for you is to make inquiries with a variety of lenders and find out what your best option is.

Note To Investors

The attraction of Lending Club is that investors have the opportunity to earn a significantly higher rate of return on investment than offered by low-risk bonds or ultra-low risk savings accounts and certificates of deposits. Average rates of return are 4.77% to 8.24% for Grades A through C loans. (The average default rate for A-grade loans is less than 1%.) If a loan defaults, the investment is lost.

Anyone may invest as little as $25 to fund a portion of the loan of his or her choice. Investors examine loan applications online and choose the ones they want to fund. All approved applicants are good or excellent bets. Lending Club avoids high-risk borrowers.  The cost to investors is 1% of each payment received from borrowers.

Lending Club responded very well to industry criticism that it overstated expected investor returns. Following discussions with Allan Roth of MoneyWatch, Lending Club made changes to its reporting methods that clearly favor transparency. Investors now see expected returns for their portfolios based on past behavior for all loans, ranging from those paid on time to those fully in default (plus three in-between stages of lateness).

Lending Club also gives additional guidance showing expected ultimate returns based on platform history, including factoring in Lending Club’s fees. By all accounts, Lending Club has made a strong effort to be fair and friendly to investors at all levels.

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  • MikeS

    I borrowed from Lending Club. Great experience. Loan was fully finded in 3 days and deposited directly to my bank in 24 hours after full funding. I have good credit and plan on paying as planned. The way I look at this, people invested their hard earned money to help me out. I cant let them down after they helped me. I have also read many of the negative reviews from both borrowers and investors. Seems many of the investor complaints were people that invested in C-F grade loans. These are the high risk loans and defaults should be expected. The borrowers complaints were people with poor credit assuming they would qualify. I have set up an investment account now and will invest in the less risky loans. My loan is a A2 credit loan at 6.49%. I think that 6.49% is a good return to investors on low risk loans.

    • Kimberly Rotter

      Thanks so much for sharing your experience! I believe you were given the best rate offered. Congratulations on having such outstanding credit! I can think of many good uses for a 6.49% loan.

      I agree – many of the complaints I found during my research were from disgruntled applicants who did not qualify, or investors who felt entitled to double digit returns. Lending Club makes no promise on returns whatsoever, even for the least risky loans. They are extremely transparent in their reporting, which is now based on the hard data of past performance.

    • Sean

      Mike, as a borrower, my experience mirrors yours. $10k in my bank account (well, $9800) in 5 days (from application to deposit) at 6.49% (I was evaluated at A2 as well).

      I used this to pay off some of the balance on my [much] higher APR cards. I only wish I knew about lendingclub.com before I went into Home Depot, Lowes, Ashley, etc. after buying a house.

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