Lending Club is one of the most successful peer-to-peer lending platforms out there. They act as an intermediary between two peers (the investor and the borrower) by allowing the investor to invest in the loan of the borrower. See it as a banking system without the banker. Borrowers submit their application for loans and investors get to scrutinize each application and invest in the loans that they see fit. It is that simple. For borrowers, Lending Club helps eliminate the high-interest rate in the banking sector. Investors also enjoy high returns on their investment compared to what they would have gained in the stock market.
Okay, I have to slam the brakes here and remind you that the risks at peer-to-peer lending platforms such as Lending Club are way higher than the risk in the traditional banking system (I will talk more on the risks shortly). It is best you familiarize yourself with the pros and cons before leaping for joy because as much as Lending Club has proved itself to be legit over the years, investors still stand a number of risks including losing everything – both capital and interests. Yes, everything. So, this is one game you have to sit back and study carefully before playing.
That said, I would like to treat this review in two sections – Lending Club for Borrowers and Lending Club for Investors – because different rules apply to both categories. Investors also get to face much more risks compared to borrowers – that’s if they face any risk at all.
Lending Club for Borrowers
I wouldn’t be wrong if I said Lending Club is best for people looking to get loans with low interest rates because it is. Lending Club helps you to get loans for various reasons grouped into personal loans, business loans, and medical loans. The medical loans also extend to medical procedures that are not usually covered by health insurance. It is just the best option for borrowers. And borrowers have virtually nothing to lose and everything to gain but that cannot be said for Lending Club investors. Lending Club offers lots of benefits to borrowers. You get to enjoy lower rates and perform every transaction from the comfort of your couch. No awkward meetings in bank offices or unnecessary delay. Upon approval, your account is accredited within a few days. Okay, how do you go about it?
First, it is crucial to note that only about 10% of borrowers actually get the loans they applied for. Several factors such as your credit score and credit history, debt-to-income (DTI) ratio, the reason for the loan, employment history, and your gross monthly income influences your chances of being picked by investors.
Currently, an average Lending Club borrower should have more than 700 as credit score and up to 16.2 years credit history. You should also have a gross monthly income of $74,414 and a DTI ratio of up to 17.9%. Having higher values in these categories will go a long way to boost your chances of being considered for a loan. Why? Because investors are very careful with the loans they vet for. They stand to lose everything if a borrower should default as such they scrutinize each loan application and only invest in the loans they feel the borrowers stand a higher chance of paying off.
You can still get a loan with a lower credit score, however, the interest rate you will have to pay will be much higher the score declines.
The Loan Process
One of the factors which make Lending Club stand out from the crowd is its ease of use. You do not need prior training in tech areas or loan/investment to navigate your way through the platform. With a few steps and in a few minutes you are set to start borrowing.
- As expected, every borrower must complete an application form on the platform’s website address at www.lendingclub.com.
- Upon completion, your application will be evaluated and a quick look on your credit score is conducted. The platform says this will not affect you negatively.
- You are then assigned a risk grade and interest rate based on the result of the evaluation conducted. Borrowers are usually grouped into seven risk grades denoted by the first seven letters of the English alphabets (A to G). Each grade is further divided into five subsections represented by numbers 1 to 5. The risk level increases from A1 to G5 as well as the interest rate. Investing in a borrower in A1 exposes you to fewer risks compared to borrowers in other grades and subsections but also attracts the lowest possible rate as interest. That’s for investors though.
- After which your application is forwarded to a number of investors to be luckily picked by a few interested investors.
- Your account would be credited with the funds within a few days once interested investors take up the offer.
How much can I borrow?
The amount you are allowed to borrow depends on the type of loan you are applying for. Unlike most P2P lending platforms, Lending Club allows borrowers to borrow up to $40,000 for personal loans and up to $300,000 for business loans. The minimum amount you can borrow under the medical loans category varies between the two types of loans available in that category. Borrowers are allowed to borrow from $2,000 to $50,000 for Extended Plans and $499 to $32,000 for True No-Interest Plans.
How Soon Do I Payoff My Loan?
Lending Club usually spread the amount to be paid across a fixed time frame which ranges from 36 months to 5 years depending on the amount and the type of loan borrowed.
Lending Club For Investors
Welcome to the investors’ corner. I will start by saying that investing in Lending Club isn’t as fun as it is to get a loan. You stand to lose everything if caution is not applied. On the other side of the scale, you stand to gain more than you would investing in bonds – up to 8.74% of the amount invested. Consequently, it is crucial to weigh each loan offer and spread your investment across several loans to be on the safe side. True, Lending Club makes borrowers submit some vital information including their reason for the loan, credit history, credit score, gross monthly income, employment history, etc., but you have to be aware of the fact that borrowers are desperate as such they can give false information just to get the fund they want.
Don’t get me wrong. I am not saying all borrowers lie or borrowers don’t pay at the end of the loan term. Far from that. I am only exposing you to the hard truth which you must learn to succeed in the platform.
That said, let’s take a look at some requirements that you must satisfy to become an investor with Lending Club.
- First, it is important to note that the requirement varies with states and some states are not allowed participation at all. Examples include Ohio, Columbia, Kansas, and Maryland.
- Second, Lending Club requires all investors to have a minimum income of $70,000 per year. Again, note this value varies with states.
- Investors with a minimum net worth of $250,000 can circumvent the $70,000 rule.
- All investors are also required to invest up to 10% of their net worth in Lending Club notes.
- Investors can only invest a minimum of $25 on a note.
- The minimum amount required to open an investment account is $1,000.
How It Works
Investors are allowed to browse through a number of loans manually to pick the loans they see fit or use the automated investing option which ease of the stress by attracting only borrowers who meet the criteria they stated.
Whichever means you employ in screening the loans or notes (I strongly recommend screening them manually), it is safe to spread your investment across multiple notes. For example, you could invest $25 in 200 notes instead of investing all $5,000 on a single note. This helps to minimize the amount of risk you are exposed to. Should 10 of the 200 borrowers fail to pay off their loans, you still have 190 loans from which you can get both your principal and a reasonable amount as profit.
What’s In It For Them?
Of course, Lending Club gets a cut from every transaction. This is the money they use to keep the place up and running. For each payment you receive, Lending club takes 1% as the investors fee.
Is there a high level of risk involved? Yes. Can the risks be minimized? Yes. So, it all depends on how much you are willing to risk and how smart you are at minimizing the risks. On the brighter side, you get to earn an average of 8.74% of each investment you make. This value can be increased to as high as 34% depending on the category of borrowers you are investing in. For borrowers, I highly recommend Lending Club. You gain access to loans at ridiculously low rates and at no risk whatsoever. Your privacy is well protected and you get to perform all transactions from the comfort of your home. You can’t beat it!