Company Profile
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.
Service Profile
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.
Loan Features
- 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
Fees
Lending Club's fee structure is simple. It affects both borrowers and lenders who use the platform. The company collects fees on a percentage basis. There are two categories of fees: an origination fee that borrowers pay and a service fee that lenders pay. The service fee is straightforward. It is a 1 percent fee that Lending Club takes out of each payment. That covers the costs of Lending Club's work on behalf of the lender, which includes the cost of the systems to help them search for loans and the credit grading system that places people into categories.
On the borrower side, the borrower needs to pay a one-time origination fee. The size of this fee is variable. At the smallest, it can be about 1 percent of the loan amount, and at the top end, it can reach 5 percent of the loan amount. Borrowers with worse credit have to pay higher fees since the higher the risk the higher the loan cost.
The fees constitute the only income for Lending Club, so there is no way to avoid them. Even borrowers with the best credit have to pay fees. However, having less debt before asking for the loan, a higher income, or a higher credit rating entitles you to a lower fee.
The interest rates that borrowers pay are not the same thing as a fee. The interest rate varies based on the credit category of the loan request. The interest rate averages around 14 percent, but borrowers with a worse credit category will pay more and those with a better category will pay less. That is the common theme with Lending Club: being in a better credit category has major benefits for borrowers.
Pros & Cons
There is a lot to consider if you are curious about Lending Club, especially if you are a borrower. On the one hand, the platform is a powerful source for funding. It is much more convenient than trying to get a loan for a bank or apply for a new credit card. On the other hand, there are some significant limits in place for the kinds of loans you can obtain, and the costs are high if you wind up in a lower category. Even before you get to that point, though, Lending Club has such high requirements that it can be hard just to qualify for them. To start with the upside, it is hard to beat how easy Lending Club is to use. The most typical applicant is trying to consolidate some existing debt. For example, you might be facing credit card debt with an interest rate of 20 percent, so you are looking for a consolidation that can get you a lower rate. Credit card consolidation loans also let you combine several different bills into one large bill, so it is significantly more convenient. Lending Club itself is incredibly easy to use. The application is much easier to fill out than many online competitors, such as other peer to peer lending groups or banks. Much of that comes down to the company's tech origins-- Lending Club has a knack for making the process easy, simple, and effective. If you try to do the same thing at a bank, you have to deal with clunky online forms and similar obstacles. Lending Club is just better at executing a smooth online experience. In addition, the sheer size of Lending Club has some appeal. You won't have to wait long to find a lender because there are just so many of them searching for people to lend to, and that is good for borrowers in general. You should not need to wait long for your loan application to start getting backers. The biggest problem with Lending Club is that it is only good for a small group of people. If you are not one of the top borrowers in terms of your credit score and income, then you might not even get approved to work with the platform at all. A few years ago, Lending Club discussed their vetting process and said that they reject around 90 percent of all applicants. That is a big red flag right away, because when you apply for Lending Club, you essentially need to be among the top 10 percent of applicants just to be considered for a loan. Lending Club does this because they want to create a very safe set of loans that they can offer to lenders, but the downside is that a lot of people just won't have access to Lending Club. Most people who need loan consolidation with bad credit or a similar resource simply are unable to meet Lending Club's standards. If you do manage to qualify, be careful of the terms and conditions on your loans, specifically the interest rate. The best categories can get rates that are much better than what you would get at a bank, but at the low end your interest rate could be pretty bad. Take a careful look at the category that the system assigns to you and make sure it is still worth it to take the loans.
Who would benefit most from Lending Club?
The kind of person who benefits most from Lending Club is someone who has some debt that they want to consolidate but also has a good income and credit score already. In this case, they will be placed into the A category and get offered a good rate for their loan. Debt consolidation is not the only reason to borrow from Lending Club, but it does appeal to lenders, so it is more likely to get funded quickly.
These kinds of people would most likely qualify for a personal loan at a different source, like a bank. However, they get better terms at Lending Club and a more convenient way to look for lenders. In that sense, Lending Club is best for making people who already have some advantages even better off. If you are making less than average income and need to borrow a significant amount of money, you are unlikely to be approved, and if you are approved then you will need to deal with higher interest rates and fees.
Summary
Lending Club has some unique benefits, and it's a real prototype of the peer to peer online lending concept. However, the fact that the platform screens out a lot of potential borrowers means that there is only a limited number of people who can actually benefit from it. The potential rewards are significant.
Visit SiteThe time savings from being able to find a lender easily alone is worth much. When you combine that with the low fees and interest rates on the top categories, it is clear that this is a platform with real potential.
It is a shame that it is so difficult to get into Lending Club. It is also possible that the platform might open itself up to more applicants now that it is large and established. That would give more people the opportunity to benefit from it and make more loans available to lenders. It's a great experience-- for those who can get it.