LendingClub is America’s largest loan marketplace. The term “alternative” has nothing to do with its size or popularity. It’s only used because LendingClub is an online lender and not a brick-and-mortar bank. As of March 2016, LendingClub had a market value of about $3.22 billion and had arranged over $16 billion in loans. Why so successful? Loans made via LendingClub provide fast access to credit at lower interest rates than most banks and credit cards. It has excellent customer service, earning it an A+ rating with the BBB.
So, should LendingClub be your first choice for personal loans and small business loans? There are other good options out there–more on that later–but LendingClub should certainly be on your shortlist. The only thing that might be an issue for individuals wanting to borrow through LendingClub is that they only offer low-interest rates to prime and super-prime borrowers.
This comprehensive review of LendingClub will look into their rates, terms and application process, and compare their loans with those offered by other alternative lenders. We also provide a detailed description of LendingClub’s eligibility requirements and walk you through its loan application process.
So What Does LendingClub Do?
Loans made through LendingClub can be used as personal loans, business loans and even to finance elective medical procedures. All credit products are available online or through a smartphone’s mobile interface. LendingClub has an edge on traditional lenders because it’s fully online. It has neither a branch network or the fat overhead that goes with it.
LendingClub also uses technology to streamline the costly labor-intensive underwriting structure that most banks these days prefer. LendingClub passes these savings on to their borrowers who get better rates, and investors who receive higher returns.
Who Is LendingClub Designed For?
Loans through LendingClub are designed for individuals and businesses that have good to excellent credit and are looking for low-interest rates. This is important. LendingClub is not for people who would find it impossible to get a traditional loan with a bank or a credit union. LendingClub is a prime lender looking for prime and super-prime borrowers. Over two-thirds of applicants get denied. That is the price of fast loans at competitive rates.
LendingClub’s loans are a particularly good fit for people who carry a balance on their credit cards or for those who have other types of long-term debt. Even consumers with excellent credit can find themselves paying variable interest rates of 17% to 19% on their credit cards, especially if they don’t pay the entire balance each month. LendingClub allows debtors to consolidate high-interest loans into a lower interest LendingClub loan with a fixed interest rate.
According to LendingClub’s own statistics, borrowers who consolidate their loans with LendingClub see a 33% reduction in the interest rate they pay on their debt.
LendingClub reports the payments of borrowers to the three major credit bureaus. If you are regular and punctual with your payments, this can increase your credit score. 76% of LendingClub borrowers saw their credit score rise after getting a loan. The average credit score increase among borrowers from January 2013 to January 2015 was 21 points.
LendingClub had a rocky beginning. Soon after it was launched in 2006, LendingClub had to fight a six-month negotiation with the federal government (SEC) for its survival. Not to mention the Great Recession that started just after LendingClub was beginning to get some traction.
In 2007, Renaud Laplanche, LendingClub’s CEO, and founder launched the company on Facebook. This was when Facebook first opened its platform to other firms. Although this was a brilliant marketing and PR move, as a business decision, it was a complete flop. At that time, Facebook was mainly populated by college students, which are neither lenders nor prime borrowers: the two demographics LendingClub is interested in.
By April 2008, Laplanche had finally ensured the capital required to promote and operate LendingClub´s website. It was at this point that the SEC decided peer-to-peer lending didn’t fit into any of the existing securities and that a new one would have to be developed. Many doubted whether the peer-to-peer companies (P2P) could come to an agreement with the SEC. To make things worse, the SEC banned LendingClub from accepting any money from investors until the issue was resolved. LendingClub was forced to use its capital to keep the website afloat. Six months later the SEC created a new type of security and LendingClub was still in business.
In 2014, LendingClub completed a $1 billion IPO on the New York Stock Exchange.
One of the differences between LendingClub and other market disruptors, such as Uber and Airbnb, is how it deals with competition. Instead of trying to undercut the competition, it is quick to partner up with other companies. For instance, LendingClub has partnered with Google, the world’s biggest search engine and with Alibaba, China’s largest e-commerce operator.
LendingClub shows no signs of slowing down. As of March 2016, LendingClub has funded $16 billion in loans.
How Does LendingClub Work?
LendingClub is a lending marketplace. It brings together investors looking for the best yield on their savings, and borrowers looking for affordable interest rates. It works much like a mortgage originator, but they do everything online. They charge origination fees on loans that are financed by investors and then charges additional fees for servicing the loans. In other words, LendingClub is not a direct lender. It doesn’t take on any risk for the loans it arranges.
Instead, it takes care of the underwriting and servicing side of loans. It collects information on borrowers, runs credit reports, and verifies accuracy. It then grades and categorizes borrowers by their estimated risk of default, to help lenders decide what loans to invest in.
LendingClub uses proprietary underwriting technology that does what traditional banks do, only faster and at a fraction of the cost. The use of technology makes it cost effective for LendingClub to deal in loans that would otherwise be prohibitively expensive to underwrite and service for traditional lenders.
LendingClub started as a peer-to-peer lending platform where small-time investors could use their savings to finance the loans of other individuals. Today, large institutional lenders are LendingClub’s primary source of capital. However, average people can still invest their savings in LendingClub. In fact, the minimum investment is just $25. Investors have received a 5% to 8% average historical return. The ROI does not include a 1% servicing fee payable to LendingClub.
What Are LendingClub’s Rates and Terms?
As of November 2015, LendingClub´s personal loans have rates ranging from 5.32% to 28.99%. Your rate will depend on your LendingClub loan grade, what origination fee you qualify for and the term length. Loan grades are a way to quantify the risk of borrowers based on their credit profile. Check SuperMoney’s profile page on LendingClub for the latest rates.
Business loans come in two flavors: installment loans and lines of credit. As of November 2015, installment loans have fixed rates ranging from 5.9% to 25.9%. Lines of credit have rates ranging from 6.0% to 21.6%. Check SuperMoney’s profile page on LendingClub’s business loans for the latest rates.
LendingClub also charges an origination fee ranging from 1% to 5% of the loan balance. This fee applies to business and personal loans and is included in the APR quoted by LendingClub. The fee is deducted from the loan balance before the funds are deposited in your account. For example, if you borrow $10,000, and you are charged a 5% origination fee, you will only receive $9,500 in your account.
There are three other fees to consider when getting a loan with LendingClub:
- A returned payment fee of $15
- A late payment fee of $15
- And a check processing fee of $7. Avoid this fee by making payments with a debit card.
Notice there are no prepayment penalties. Borrowers who can afford to pay their loans off early can save big on interest payments.
How Much Can You Borrow From LendingClub?
LendingClub provides loans of up to $40,000 for personal loans. Business owners can apply for up to $300k.
What Is LendingClub’s Application Process Like?
LendingClub has a simple five-step application process. Borrowers must have a steady and substantial income and a credit score of over 660.
1. Check Your Rate
Specify how much you need, the purpose of the loan and your credit score. You will also need to provide your full name, address, and annual income. This step has two screens. LendingClub performs a soft credit check, so checking your rate won’t affect your credit score.
2. Choose Your Offer
If you qualify for a LendingClub loan, you are given a range of offers to select from. Choose the one that best fits your needs.
3. Personal Details
Provide your phone number. Specify whether you rent or own your home and how much you pay. LendingClub also requires your employment status, your position, how long you’ve worked there and your Social Security Number. Investors use this information to filter the borrowers they fund. For instance, many investors prefer borrowers who are looking consolidate their loans. Higher risk borrowers, such as those who want to invest in a new business, are not as popular.
4. Watch Your Loan Get Funded
Remember LendingClub is not a direct lender. You will have to wait until enough investors fund your loan.
Once funded, LendingClub sends your money straight to your bank account.
What Are The Advantages and Disadvantages of LendingClub?
LendingClub is one of the best online loan marketplace platforms in the business. Prosper and SoFi are among the few companies that can compete. SoFi has lower interest rates, but it’s also harder to qualify for a loan. Prosper has higher rates: 5.99% to 36.00% APR, but they consider borrowers with lower credit scores.
This is what we love about LendingClub:
- Largest alternative online lender. It’s hard to argue with the leverage size and volume provides lenders.
- Low-interest rates
- Fixed rates
- No prepayment penalties. Pay early to save on interest.
- Fast and easy application process
- Report to major credit bureaus. Of course, this can backfire if you miss or you’re late with payments.