LendingClub is the world's largest peer-to-peer lending platform for personal loans. It was launched in 2007 by Renaud Laplanche, who got the idea of starting a lending marketplace when he noticed the huge spread between the interest rate his credit card was charging on unpaid balances and the returns on his savings account.
LendingClub started as a Facebook application, which generated the buzz and investors Laplanche needed to take the concept to the next level. As of October 2014, LendingClub has funded over $6.2 billion in loans and paid $595 million in interest to investors.
As with other peer-to-peer lending platforms, LendingClub cuts out the middle man, banks, by giving investors the chance to lend money directly to borrowers for a higher return. The actual loans are initially made by WebBank, a Utah-chartered industrial bank, but LendingClub uses the capital of individual investors to purchases the loans. Investors then receive the payments of borrowers plus interest. However, there is risk involved. If borrowers don't pay their loans, investors could lose their money. LendingClub makes money from charging borrowers and investors fees for its services.
LendingClub assigns borrowers a score based on a 25-grade system, which will determine what interest rate they qualify for. Rates range from 6.78% to 29.99%. The average interest rate is 14.09%.
Borrowers can apply for loans ranging from $1,000 to $35,000. LendingClub offers 36-month and 60-month loan terms, but you can always pay the loan off early with no prepayment penalty to worry about.
LendingClub's loan application is processed online. Your first step is to check what rate you qualify by filling a short questionnaire. This will not affect your credit score. If you qualify, you will receive several loan offers from individual investors. Choose the loan you like the most and complete an online application form and data verification process. You will get a response within minutes and the money should be deposited in your bank account within seven days.
LendingClub provides better returns for investors and lower interest rates for borrowers than most traditional financial institutions.
According to a survey performed on 20,913 LendingClub customers, borrowers who used LendingClub to consolidate their debt reduced their rates by an average of 31%. Investors receive an average return of 9-10%, which isn't bad when you consider savings banks rarely give more than 1% on savings accounts.
The application process is simple and you can expect a quick response to your application. The catch is LendingClub rejects 90% of applicants, so don't feel bad if you're not immediately successful. Your credit score must be higher than 660 and your debt-to-income ratio must be below 25% to be even considered.
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