Lending Club was founded in San Francisco in 2006. The company has been one of the first online peer to peer lenders to be registered with the SEC. This emphasis on gaining official status has given Lending Club an air of legitimacy. At the same time, its origins in the tech-driven environment of San Francisco mean the company emphasizes the power of communication and technology to bring borrowers and lenders/investors together.
As of now, Lending Club is the largest peer to peer loan platform, having processed billions of dollars in loans per year since its inception. Its size alone means it attracts both individual lenders and borrowers often. Moreover, it has grown over time, and now offers business loans as well as many different kinds of personal loans. Lending Club went public in 2014, and before, during, and after its IPO it has attracted a lot of attention from venture capitalists and other investors. The company makes money by charging fees on both sides of each loan. All investors pay a service fee to Lending Club and borrowers pay an origination fee.
Lending Club is available almost all over the US. Most US states permit their residents to lend money on the platform. The vast majority of states allow their residents to borrow. As of now, there are no plans to expand Lending Club overseas. The interest rates that borrowers have to pay are based on their specific circumstances. For the most part, loans are for a duration of three years. There are some exceptions for five-year loans, but these carry higher fees. The company prefers a standardized approach to lending where borrowers fall into fixed categories that have their own interest rates.
Lending Club's service consists of unsecured personal loans for which many borrowers use to refinance their credit card debt at a lower rate. They have recently begun adding business loans as well. Unsecured means that the loans do not have any collateral backing them. A car loan is a secured loan because the car itself is the collateral for the loan: if the borrower fails to repay the loan, the lender can take possession of the car. Mortgages work the same way. In an unsecured loan, the lender cannot take possession of anything and must either pursue the matter through the courts or give up.
To get started on Lending Club, borrowers need to fill out an application. This will ask them questions about their income and the purpose of their loan. The company also looks up their credit score. First of all, Lending Club will decide whether or not to approve the application. This is because there are some people who will seem so unlikely to pay back the loan that Lending Club does not want them on the platform.
After Lending Club evaluates the application and approves it, the system will assign each borrower to a category. The top category is "A." Borrowers in A have the lowest interest rates. It moves down through B, C, and so on for steadily less creditworthy borrowers. The lower the credit score and other attributes of the borrower, the more they will need to pay in interest. Lending Club takes several factors into account when assigning people to categories, including their credit score, income, current debt, job status, and how much they want to borrow. The company does all of this work to screen out bad borrowers because it wants to be sure that people who borrow money on the platform are likely to pay it back.
The lenders can see all of the loan applications available at the time. They can search through them and sort by category, loan purpose, or any other attribute. This is to make it easy for them to find loans that fit their investing goals. For example, some lenders might want to make a big profit, and they will try to find high-risk, high-reward loans. Others are more interested in making a smaller, but less risky profit. They will look for higher classifications of loans.
The range of loans that a borrower can request is $1,000 to $40,000. On the lender's side, the lender must fund at least $25 worth of money into any one borrower's request if they want a relationship with that borrower. The loans themselves are technically held by Lending Club, who takes payments from the borrower and sends money to the lender. This is also the point at which Lending Club charges their fees. The fees are the revenue for the company.
The borrowers are often looking to consolidate their credit card debt or some other form of debt. Because of the Lending Club screening process, they tend to have higher incomes, in the neighborhood of $70,000 on average. They also have credit scores that approach 700. Lenders may be private individuals or they could be institutions like banks, who are allowed to participate in the platform.
- 3 year or 5 year term
- $1,000 to $40,000 limit
- 5.99% - 35.96% APR
- Consolidate high rate credit card debt
- Checking your rate won't affect your score
- Get one low monthly payment
- Approval within minutes