Have you ever heard of peer to peer lending? It's a loan service that matches investors with borrowers. Basically, if a borrower asks for a $2,000 loan, one investor can fund the entire loan, or a bunch of investors can pitch in to help fund the borrower's loan. In fact, investors can contribute as little as $25. The borrower then receives the loan and pays interest on it. The interest is split between the different investors. Lending Club brings the investors and borrowers together to make loan lending/borrowing as painless as possible.
What is Lending Club?
Lending Club is the first American peer-to-peer lending company to offer loan trading on a secondary market. They were founded in 2007 and have since facilitated more than $35.9 billion in loans. Since they were the first, they've gotten a wave of competition, but they're still the number 1 peer lending company in the USA.
Borrowers take loans from Lending club for all sorts of reasons. The main reasons have been for refinancing a home (43.36%), paying off credit card debt (17.89%), and other like business or car financing (38.85%).
Is Lending Club available in Canada?
No, currently Lending Club is NOT available to Canadians. The best alternative to Lending Club in Canada is Lending Loop.
How does Lending Club work?
Lending Club is a service that screens borrowers and issues the loans once they get approved. However, the Lending Club doesn't decide if your loan gets approved or not. Instead, the investors will decide based on the Lending Club grade, your credit and income data collected upon screening. This data also helps determine how much interest the borrower will need to pay. Only investors will be able to see the grade.
When you do get approved, the loan will arrive in the borrower's bank account in more or less 1 week.
Lending Club requirements
Lending Club digs into the borrower's information. According to the company, they review things like the borrower's reason for getting a loan, bank account transactions, income, credit, and DTI ratio.
To get a loan from Lending Club, investors generally look for a credit score no lower than 600 and a debt-to-income ratio of less than 40% for single applications and 35% for joint applications. If the borrower files for a joint application, Lending Club may give them a more substantial loan because of multiple incomes, and better-combined credit.
If the borrower has bad credit, it could lead to a high-interest rate (up to 35.89%) and a steep origination fee. On top of that, the borrower must have a 3-year credit history under their belt. If borrowers have bad or new credit, they might do better with a different type of loan.
The borrower must be over 18 years of age, a US citizen or permanent resident with a valid bank account. Other requirements include a street, rural route, or APO/FPO residential mailing address, social security number, a valid government-issued ID, and an email address.
Types of loans
The Lending Club offers loan types for borrowers in different situations.
- Personal loans: get a loan of up to $40,000.
- Business loans: get a loan of $5,000 to $500,000.
- Auto Refinancing loan: funding depends on refinancing costs.
- Dentist or doctor loans: funding depends on medical costs.
In 2019, Lending Club introduced a balance transfer loan to help borrowers pay off credit cards and deal with debt. Lending Club sends money to up to 12 creditors. Then the borrower is in charge of paying off Lending Club. This type of loan carries the same rates, qualifications, and terms as all other loans.
Lending Club pros and cons
- Soft pull: no hard credit inquiry needed to check rates. You can conveniently shop around without hurting your credit score.
- Low credit score requirements: Lending Club accepts credit scores of 600. While the borrower will likely pay higher interest with this score, the rates may be better than other peer-to-peer lending companies.
- Long loan repayment terms: If the borrower wants to keep payments low by repaying for an extended period, loan repayment terms of 3 and 5 years are available.
- Clarity: Lending Club's terms are so clear that borrowers are shown the exact dollar figure they'll pay for the amount of loan and the term chosen before even committing to the loan.
- Security: Every page on Lending Club's site is secure and encrypted with Secure Sockets Layer (SSL) to protect the borrower's personal and financial information over the internet.
- Longer wait: Borrowers might be better off going with a different loan company if they need fast cash. Lending Club usually takes 7-10 business days to put the loan together.
- Origination fee: If the borrower ends up getting the highest origination fee (6%), it will take out a chunk of their loan. For reference, 6% of $10,000 is $600. The borrower still needs to pay this back with interest on the origination fee. Other peer-to-peer lending companies don't have such fees.
- Application requirements: Some applicants may be asked to provide tax documents. Although it's not rare in the peer-to-peer loan industry, it may be inconvenient or lessen a borrower's chances of getting accepted.
- Little leeway: Lending club calls you to sort out one missed payment. However, after the next, the borrower will likely be passed onto a collection agency.
As most peer-to-peer lending services come with its pros and cons, Lending Club's aren't that bad. However, it's up to you to decide what could be a deal-breaker or a deal maker.
Where is Lending Club available?
Lending Club currently facilitates loans in all US states, except for Iowa and the US territories.
Lending Club is a good option if the borrow has a good/great credit score. But, even with an outstanding credit score, make sure you know what you're getting into before shopping for a loan. First, find out exactly how personal loans work, if consolidating debt is right for your current situation, and calculate precisely how you're going to repay it.
Lending club is not available to Canadians at the moment. Lending Club currently only facilitates loans in US states, except for Iowa and the US territories. The best alternative for Canadians is Lending Loop.