Financing Club was an online platform for peer-to-peer (P2P) loans that eliminated the need for bankers in the lending process. Through the use of the website, investors would lend money directly to borrowers, allowing both parties to profit from the interest rate that was determined for each loan. The peer-to-peer lending service was once provided by Lending Club but has since been discontinued. When I first started working on this review, Lending Club was already well established as a leading brand in the peer-to-peer lending industry. Feel free to read further, but keep in mind that Lending Club does not provide this service anymore. There are still things to learn about P2P in general, so although you are welcome to do so, know that Lending Club is no longer providing it. Additionally, and this is of equal importance, the whole transaction takes place online, eliminating the need for in-person meetings, which may be awkward at times and typical of bank loans. The Lending Club approach is beneficial to both the investor and the borrower. Therefore it may be considered a win-win situation. Find out more about obtaining a loan by reading the information provided below! Lending Club is a legitimate option for anyone interested in either investing or borrowing money. In contrast to past reviews of Lending Club, this one will examine the platform from the perspective of both borrowers and lenders. Be sure to read about my experience with Lending Club below before you decide to invest or borrow money from them. Read our review of M1 Finance Investing to learn about more fantastic opportunities to put your money to work.
Is There a Place for You at Lending Club?Are you an investor who is interested in earning a higher return than the standard rate? Are you a borrower interested in paying a lower fee than what the banks charge? Because their peer-to-peer lending model made those same promises, Lending Club has been revolutionizing the traditional banking sector with its peer-to-peer lending platform. And when I had my first experience with peer-to-peer investment, I understood that I needed to write a review of Lending Club. It was a service that was appropriate for folks who wanted to invest anywhere from $1,000 all the way up to $20,000. In addition to this, they provided a wide variety of loan options, ranging from personal to medical to commercial, many of which did not need security. Having said that, there are a few drawbacks, or at the very least, things that you should be aware of. Lending Club's platform for peer-to-peer lending will be the subject of three separate articles:
- The financial backer
- The one who takes out a loan
- My own experience
Analysis of Lending Club From the Perspective of InvestorsLending Club offers a genuine possibility to earn much greater returns, in contrast to the typically low rates of return provided by safe investments in fixed-income securities, which are often below one percent. In point of fact, you have the potential to get profits averaging anywhere from 5.06 percent to 8.74 percent. Those are pretty enticing interest rates, but, just to be clear, investing via Lending Club comes with a greater degree of risk than investing through a bank on a certificate of deposit. In addition, in order to qualify as an investor, you need to fulfill a number of criteria. Always keep in mind that the possible reward will always be inversely proportional to the risk.
Investor RequirementsNot all states provide notes for their residents to purchase. You must be a resident of one of the following states or the District of Columbia in order to invest in Notes through the LendingClub platform: Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, Oklahoma, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin. Even if your state is not on the list above, there is still a chance that you might exchange Notes on the secondary market. At the present moment, citizens of Ohio are unable to purchase Notes as an investment option. There are minimum income criteria to invest in Lending Club, and they vary depending on the state in which you reside. As a general rule, the yearly minimum wage in most of the United States is set at roughly $70,000. If an applicant can show a net worth of at least $250,000, the minimum income requirement is usually relaxed. In order to participate in the Lending Club program, you must invest no more than 10% of your net worth in Lending Club notes. A deposit of $1,000 is required to start an account with Lending Club, and a minimum investment of $25 is needed to purchase a note via the platform. The beginning balance required to create a retirement account is $5,500.
IRA from Lending ClubYou also have the option of including assets in Lending Club inside a self-directed individual retirement account (IRA). You are able to do this with the help of a self-directed IRA via Lending Club. To start a Lending Club IRA account, a $5,500 deposit is necessary. Your monthly management fees are no longer an issue since you have this much money to invest with. The Individual Retirement Accounts (IRAs) offered by Lending Club may either be Traditional or Roth. You are aware of the fact that I am a strong advocate of the Roth IRA. This is another city for you to put money down for your future. But I wouldn't recommend putting all of your savings there for your retirement. Before you commit to this particular kind of investment, you should have a discussion about it with a financial consultant since Roth IRAs aren't suitable for everyone. Find out more about the contribution limitations for Roth IRAs right here.
How to Determine Which Notes to Invest InInvesting with Lending Club may be done in one of two ways. When you invest manually, you go through the available loans and choose the ones in which you want to invest on an individual basis. However, you also have the option of using automated investing, which allows you to establish investment criteria and results in the selection of notes being made automatically depending on those criteria. Although you have the option of investing in individual loans, it is recommended that you purchase the loan infractions. You have the opportunity to buy notes in quantities of $25 each. You could, at the very least, buy a fractional interest in 200 loans with a total investment of $5,000. This would be the very minimum.
Gains Obtained From Investments Being CollectedYou need to know that the notes you are investing in are not the same as certificates of deposit. Each note is the same as a loan, and you will get paid back for it over the loan's term. With these payments, both the principal and the interest on the debt will be paid off. That indicates that when the period of the loan comes to a conclusion, the loan will be paid up in its whole (including 100 percent of your original principal invested). Because of this, you will have to keep reinvesting the money you get in the same way, and at the same time, you accept payments.
Loan Categories Offered by Lending Club and Their Letter GradesThe loan period may be either 36 or 60 months long, and it has a set interest rate. More than eighty percent of the loans offered by Lending Club are used to pay off current debt, such as credit card obligations or other loans. A borrower's credit and credit score, debt-to-income ratios (DTI), the length of their credit history, and current credit activity are considered when pricing a peer-to-peer loan, in the same way, that these factors are considered when pricing other types of peer-to-peer loans. Each loan receives a loan grade, with "A" being the best possible grade and "G" being the lowest (the lowest). When the quality is higher, the interest rate is lower. Lending Club also gives a number of ratings ranging from one to five, which may be found inside each letter grade (A1, A2, A3, A4, A5). These numerical subgrades take into account additional parameters such as the quantity of the loan and the length of the loan. For instance, a loan in the amount of $5,000 would be considered to have a low risk, and it would actually lead to an improvement in the sub-grade. The maximum loan amount of $35,000, on the other hand, has a greater risk and has the potential to lower a B1 grade to a B4 or B5 level, which would result in a slightly higher interest rate.
Trading Notes (Buying and Selling) Before they reach their maturityYou may sell the remaining part of a note using the Note Trading Platform that Lending Club provides through Folio Investing. You will be able to do so if certain things are true. This is a place where investors can meet and talk to each other about buying and selling Lending Club notes. Indeed to create a trading account with Folio Investing via Lending Club in addition to opening an account to participate in this marketplace. On the trading platform, purchasing notes will not incur any costs; however, selling a message will result in a one percent transaction fee being assessed.
The Risks Involved in Lending Money and Ways to Reduce ThemIt is essential to be aware that investments maintained via Lending Club are not considered bank assets; as a result, the FDIC does not provide protection for these types of investments. Individual loans have the risk of def default. If this happens, you will suffer a loss proportionate to the amount of your investment that was tied to that loan. In addition, if a borrower misses a payment on the loan, the amount that is due to be made to you for that specific month will not be received. Even if Lending Club uses "best practices" to try to recover past-due payments from delinquent borrowers, some of them will still fail on their loans. Without any legal action, investors are subject to an 18 percent collection penalty for loans that are more than 16 days past due. If litigation is necessary, you are responsible for paying a third of an attorney's hourly fee and any extra expenses incurred. If attempts at collection are unsuccessful and it is clear that the borrower will not be able to repay the debt, the loan will be written off once it has been past due for a period of 150 days. When this occurs, the amount that is still owed on the principal balance of the note will be subtracted from the total amount that is held in the investor's account. On a proportional basis, any money that is later recovered on the loans that were in default will be refunded to the investors who invested in those loans. If you invest in Lending Club, you take on this recognized risk, yet you will very seldom see it brought up in any concerns that individuals have about the website. In the same way that there are strategies to invest in a portfolio of stocks and bonds that will lower your overall risk, there are also ways to support in Lending Club that will minimize the risk you take on as a whole. Spreading out your investment over a variety of loans, even hundreds of them if you're in a position to do so, is, without a doubt the most straightforward tactic to pursue. By imposing certain lending restrictions, you may reduce the amount of risk you take on. For instance, you can make the decision to establish a credit score that is a certain amount more significant than the one that is needed by Lending Club (currently 660). You may also put more of an emphasis on loans in which the borrowers are paying off previous debt with the new money rather than taking on more debt. The security of one's employment is another important consideration. A person who has been working in their area for a number of years is likely to have a more significant number of employment opportunities than someone who is just beginning their career in the sector. A low DTI is another aspect that works in your favor. You may, for instance, ensure that the borrowers whose loans you invest in have a DTI that is lower than, say, 30 percent before making the investment. This suggests that their housing costs, new loan payment, and any other fixed monthly expenses do not exceed 30% of their gross monthly income. This applies to all of their fixed monthly fees, including the payment on the new loan.
Costs to InvestorsWhen investing with Lending Club, investors will be subject to fees. On the other side, you will not have to collect the costs until the borrower has repaid the loan. A service fee equivalent to one percent of the total amount is assessed for each payment received. Adding investments via Lending Club to a portfolio focused on a fixed income may provide you access to outstanding high-income diversification opportunities. The total return on your fixed- income assets may be increased even if you do nothing more than investing a percentage of your fixed-income allocation in notes offered by Lending Club.
A Review of Lending Club Intended for BorrowersLending Club provides its users with the opportunity to not only make financial investments but also take out loans. Whatever it is that you need, in all seriousness, Lending Club can provide you with an excellent price on it. Lending Club offers interest rates on loans that are often cheaper than those offered by traditional financial institutions like banks. You may also submit an application for a loan without ever having to leave the comfort of your own home. Because everything can be completed over the internet, there is no longer any need for an embarrassing in-person meeting at the bank's headquarters. In the event that your loan is accepted, the money that you have requested will be sent to you within a few days.
The Step-by-Step Process Behind a Loan From Lending ClubThis is a straightforward multi-step technique that roughly looks like this:
- LendingClub.com requires you to fill out an application.
- Your application is reviewed, and a credit report query is performed (referred to as a "softinquiry" since it does not have an adverse effect on the applicant's credit score).
- According to what was covered in part before this one, you have been given a risk ratingthat falls somewhere in the range of A1 (the highest grade, the lowest rate) to G5 (the lowest grade, the highest rate) (lowest grade, highest rate). Again, this grade is determined by a number of factors, including your credit score and credit history, job status, income, and the amount of debt you have relative to your income (DTI).
- Your risk level will determine the interest rate that is applied to your loan.
- You will be given a selection of loan options to choose from.
- Before selecting whether or not to invest, prospective investors will analyze your criteriaand the quality of the loan.
- As soon as all parties agree on the transaction, the loan is processed, and the funds are deposited into your account within a few days.
Borrowers' Demographics and Profiles on Lending ClubThrough its credit screening procedure, the Lending Club evaluates potential borrowers as well as companies. A minimum credit score of 600 is necessary for job consideration. This information cannot be found elsewhere on the LendingClub.com website since the company does not disclose its lending conditions to the public. You may be confident that you will be accepted for a loan if you have a credit score that is above average, a credit history that spans many years, and a debt to income ratio that is within normal limits. According to the most recent statistics that are currently available, the typical Lending Club borrower had:
- Income of $74,414
- Credit history of 16.2 years
- Non-mortgage debt to income ratio of 17.9 percent
- A credit score of 699, Non-mortgage debt to income ratio of 17.9 percentIt is essential to keep in mind that there are a lot of small company owners that borrow via Lending Club; thus, the fact that you do not fit these statistics should not discourage you from applying.
What Kinds of Loans Are There to Choose From?The majority of peer-to-peer lending platforms provide personal loans or business loans, but relatively few offer both types of loans. Lending Club provides a variety of loans, including those for businesses, individuals, and even those specifically tailored for medical expenses. The following is a summary of the many kinds of loans that may be obtained via the Lending Club platform.
Loans On A Personal LevelThe personal loans offered by Lending Club may be put to use for almost any objective. This includes consolidating debt, refinancing credit card debt, making large expenditures, purchasing a house, financing a vehicle, refinancing a green loan, getting a loan for a business purpose, financing a trip, and moving and relocating. It is also possible to use a personal loan to pay for the installation of a swimming pool in your backyard. Among the available options for personal loans, credit card refinancing is perhaps the most intriguing one. Your credit score will likely improve as a consequence of consolidating several credit card balances into a single personal loan. This will often happen when you pay off more debt at once. The reason for this is that paying off the balances on the credit cards leads to a reduced credit usage ratio as well as a smaller number of loans that have open account balances. The credit agencies' evaluation of your financial history will be improved as a result of any of these results. Lending Club just boosted its ceiling to $40,000, which is far more than the majority of other P2P lending companies, which restrict their personal loan limits to $35,000. Furthermore, no collateral is required for any of the personal loans that may be obtained via Lending Club. This covers unsecured personal loans that are used for the purpose of purchasing autos. Installment loans, which have set rates and payments and must be paid off in full by the end of the loan period, are the only kind of loan that may be obtained via the site. These periods might be for a period of two years, three years, or even five years.
Business LoansThere are a number of peer-to-peer lenders that provide business loans, but in reality, these are just personal loans that may be used toward company expenses. There is an actual business lending program available via Lending Club. In point of fact, this applies not just to company loans but also to business lines of credit. Typically, unsecured business loans have a one- to five-year duration and a set interest rate. In the same way, a home equity line of credit provides the opportunity to borrow money, and so does a business line of credit. Only the remaining loan amount will be subject to interest charges. For future borrowing, you will have access to your credit line after you pay back the loan. The maximum amount that may be borrowed via these loans and lines of credit is $300,000. Lending Club does not require its borrowers to provide business plans or estimates. The company also does not need appraisals or title insurance. If you have ever taken out a loan for your company from a financial institution, you are aware that the criteria are practically considered industry norms. In addition to this, if you take out a loan or line of credit for an amount that is less than $100,000, you are not obliged to put up any collateral. When it comes to loans of a more excellent value, collateral is often supplied in the form of a general lien on the company itself, in addition to personal guarantees from the owners of the company. The use cases for loans and lines of credit are almost unbounded. You may use them for debt consolidation, refinance current debt, set up a new company location, rebuild your firm, or pay for marketing expenditures. You can also use them to buy inventory, acquire equipment, and purchase stock.
Medical LoansThis is the kind of loan that has arrived at the perfect moment! Lending Club Personal Solutions provides you the option to finance uninsured medical bills, which is helpful in light of the fact that health insurance deductibles and co-insurance clauses are on the rise. Surgical operations, including hair transplants, gastric bypasses, in vitro fertilization, and dental work, which is not covered by most health insurance policies, may also be paid for with the loan. For this specific reason, Lending Club provides three distinct sorts of loans:
- Plan with a Stable Fee
- Plan with No Interest for Promotional Purposes
- Plan for Reduced Fees (or Rates)Lending Club has relationships with hundreds of healthcare providers around the country that are willing to accept financing arrangements made via the site. Before undergoing any operations, it is essential to check and make sure that the provider in question is a member of the consortium.
Auto RefinancingAuto refinancing, as defined by Lending Club, is "paying off your old automobile loan and replacing it with a new one, generally from a different lender." You may be able to reduce your monthly payment and save money on interest by refinancing your existing vehicle loan. Altering the duration of your loan term may lower your monthly payments, giving you more money to put toward your other financial obligations. Customers who opt to refinance their vehicle loans with Lending Club may save an average of $80 per month on their payments. If you want to refinance your automobile, your vehicle must meet one of the following criteria:
- 10 years old or more recent than that
- Under 120,000 miles
- A vehicle that is driven only for the owner's own usage.Additionally, the following conditions must be satisfied for your current auto loan:
- A delinquent debt ranging from $5,000 to $55,000
- At least one month ago, they were put into motion.
- At least twenty-four months' worth of payments is still outstanding.
Loan Arrangements and Interest RatesYou are able to borrow any amount up to $40,000, and while the loans are typically used for refinancing debt or consolidating debt, you are also able to borrow for other purposes, such as unsecured loans for home improvement. Despite the fact that these loans are often used for debt consolidation and refinancing, you may use them for any reason. Two terms of 36 months and 60 months are now available for loans with a fixed interest rate. The sort of loan that you choose, as well as your loan grade, will both have an impact on the total amount that you will pay in interest rates and fees throughout the life of the loan.
Loans On A Personal LevelYour credit rating, which may range from a high of A1 to a low of G5, will determine your interest rate, as was mentioned above. This range can go as low as G5. A1's annual percentage rate (APR) starts at a minimum of 10.86 percent. At the moment, the maximum interest rate that can be obtained is 35.89 percent. Although there is no charge to submit an application with Lending Club, the company does charge an origination fee, which is standard practice for peer-to-peer lenders. The origination cost that Lending Club charges vary; thus, you should go through the most recent terms to see whether or not it is suitable for you. Because the cost is taken out of the total amount that is borrowed, you will only be required to pay it if you actually take out the loan. On any of its loans, Lending Club does not impose a prepayment penalty on its customers.
Business LoansThese loans are accompanied by an entirely different pricing system. The annual percentage rate (APR) for business loans may vary from 9.77 percent to 35.89 percent, based on criteria such as the borrower's credit score and the financial soundness of the firm. An origination fee is typically required for commercial loans and lines of credit as well. This might be anywhere from 3.49 percent to 7.99 percent of the total amount of the loan. To reiterate, prepayment penalties are not associated with company loans or lines of credit in any way.
Patient Solutions LoansThere are three distinct loan options offered via Patient Solutions; thus, there are also three different price structures.
- Plans with a Fixed Interest Rate: This plan provides annual percentage rates (APR) ranging from 4.99 percent to 24.99 percent, depending on the amount being financed and the credit history of the applicant, for durations of 24, 36, 48, 60, 72, or 84 months. The rates begin as low as $105 per month for a $5,000 case at an APR of 8.99 percent for a term of 60 months.
- Promotional No-Interest Plans — This kind of loan program provides a zero percent annual percentage rate (APR) for durations of six, twelve, eighteen, or twenty-four months and for loan amounts ranging from as low as $499 up to $32,000. Following the conclusion of the interest-free period, the outstanding amount will be subject to a variable rate with an APR of 26.99 percent. And if you can repay the loan during the interest-free term, you won't have to add interest to the price of an already expensive procedure. This makes it possible to get cash for medical treatments without having to do so.
- Plans with Promotional Interest Rates This plan provides an annual percentage rate (APR) of 17.90 percent for a term of 24, 36, 48, or 60 months for loan amounts ranging from $1,000 to $32,000. Following that, a purchase APR of 26.99 percent will be applied. A minimum purchase of $1,000 is required for 24, 36, and 48 months, and a minimum