Lending Club Review: What Is Peer-to-Peer Lending?
Before delving deeper into Lending Club reviews for investors or any other pertinent Lending Club review, it’s vital to understand several facts about this online lending company.
A peer-to-peer lending company allows investors to individually choose whether or not to fund loan requests from other individuals. It’s much like a matchmaking service, only for a borrower and investor. Rather than applying for a loan at a brick and mortar financial institution, such as a bank, borrowers apply online to be “shopped” by a potential investor.
Several positives of peer-to-peer lending are:
- Borrowers have access to lower interest rates.
- Individual investors can earn higher rates of return on their investment, with only a small initial monetary outlay (depending upon the peer-to-peer platform minimum).
- The online company, such as Lending Club, provides an intermediary service (particularly if a borrower defaults on their note).
- Loans may be secured or unsecured.
- There are several different loan types for both borrowers and investors.
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Review Lending Club: A Short History
Lending Club’s history began prior to the financial meltdown of 2008. It was initially a Facebook application and subsequently grew into a larger, peer-to-peer lending company with its first round of venture capital funding in 2007.
After the United States economy hit the 2008 recession, the U.S. Securities and Exchange Commission began to scrutinize all financial institutions more closely. As a result, the Lending Club, along with other peer-to-peer lending companies, was required to file an S-1 statement and register their business as securities in accordance with the U.S. Securities Act of 1933.
Another ripple effect of the 2008 recession included traditional banks becoming more restrictive about lending. Consequently, Lending Club and other peer-to-peer lending institutions increased in popularity quite dramatically.
Even though most Lending Club reviews and Lending Club investor reviews have been positive overall, Lending Club has recently faced some challenges when its former CEO (and co-founder) Renaud Laplanche was fired (or forced to resign) due to lack of cooperation with an investigation. Evidently, the inspection began due to discrepancies in documents regarding millions of dollars’ worth of loans.
Scott Sanborn (a former Chief Marketing Officer at Lending Club and, prior to that, eHealthInsurance) is the current Lending Club President and CEO. Lending Club is headquartered in San Francisco, California, and is reported to be the largest peer-to-peer lending company at the moment.
A Lending Club Review of Their Financial Services
Lending Club’s offerings swiftly expanded after approval of their S-1 application by the U.S. Securities and Exchange Commission. Not only did their investor funding increase (they received another $12 million from venture capitalists), but in 2014 they began offering small business loans. After which, in 2015, Lending Club added car loans as an option for borrowers and their lenders.
At present, Lending Club offers the current financial products:
- Personal Loans: $40,000 maximum (home improvement, debt consolidation, pool loans and car loans).
- Business Loans: $300,000 maximum (purchase equipment, hire new employees, consolidate date, expand location)
- Medical Loans: Called “patient solutions” where doctors can enroll their practice and offer loans to patients for dentistry, fertility, hair or bariatric treatments. The maximum amount, depending upon the plan (there are two of them) is between $32,000 and $50,000.
Lending Club Review for Investors: How Does It Work?
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As with most, if not all, financial institutions, there are some prerequisites to consider before choosing to become an investor in the Lending Club. Throughout the research gathered while focusing on Lending Club investment reviews, several key criteria became evident.
Further research using the key term Lending Club review for investors indicates that to become a Lending Club investor, the following is required:
- Investors may be both individuals or group entities/institutions.
- Investors must meet the Financial Suitability conditions which include: yearly gross income of $70,000 minimum, and a net worth of between $70,000 and $250,000 (excluding home, home furnishings, and cars).
- For a resident of California, the Financial Suitability condition is: yearly gross income of $85,000 and a net worth between $85,000 and $200,000, also excluding home, home furnishing, and cars.
- Investors must be at least 18 years old and possess a valid Social Security number. Lending Club will verify investor identity.
- Due to legal restrictions, there are only 43 states that allow individuals or entities to invest in Lending Club: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Via Lending Club investor reviews, potential investors have two choices: open an IRA account or a regular investing account to lend money to potential borrowers. Lending Club makes the process effortless:
- Choose an account type (Retirement or Investment).
- Lending Clubs asks for investor’s name, address, phone number and Social Security number.
- Lending Club will ask to fund the investor’s account immediately, but there is an option provided to skip that step for the moment.
- Investors will choose between manual or automatic investing.
- Investors may reinvest their profits or withdraw funds.
After approval, investors can invest as little as $25 for one borrower note, diversify their investment through several $25 notes, or invest larger amounts into a single note or multiple notes. The terms on the loans are either 3 years or 5 years.
Of equal importance for accurate Lending Club investor reviews are the returns on the investment. Lending Club bases net return on a systematic Loan Grade system. The lower the loan risk, the lower the yield.
Loan Grade A notes yield 5.5%, whereas borrowers who have shaky credit (or other less than optimal factors) help investors yield a return of 12.2%. Less risk equals a lower default rate. Greater risk will equal a higher potential yield, but also more potential for borrower default.
There are Lending Club fees for investors:
- Service Fee: 1% for borrower payments transferred within 15 days of the payment due date.
- Early Payoff: For the first 12 months after the loan is established, investors do not pay more than the 1% monthly payment amount (i.e., if the monthly payment is $200, and the borrower pays off the loan, the investor will only be required to pay $2).
- Collection Fees: Should a borrower’s note default and move to collections status, investors are charged 18% of the amount collected, or should legal action be taken, 30% of attorney fee hourly charges plus additional costs.
Are There Negative Lending Club Investing Reviews?
All investments have varying amounts of risk. While the application process to become an investor is, on first appearance, simple, it is deceptively so. At no time during the investor sign up are the financial condition criteria clearly stated.
Certainly, it is up to the investor to search on their own for Lending Club investing reviews and thoroughly assemble information, including any Lending Club complaints.
However, the aforementioned Financial Suitability conditions severely limit the scope of availability to smaller investors, which makes it a salient detail for potential investors.
In spite of the risk concerns, such as borrower defaults, increased interest rates, and larger institutions (or individuals with greater financial access) having the ability to grab the better-rated notes more quickly, Lending Club investor reviews are overwhelmingly positive.
These optimistic Lending Club reviews for investors continue to hold true, even in the aftermath of Renauld Leplanche’s investigation and resignation.
Is Lending Club Safe for Borrowers?
Lending Club reviews for borrowers also share consistently positive ratings. To directly answer the question, “Is Lending Club safe for borrowers?” is a bit more difficult.
Lending Club continues to have a great track record in terms of longevity. Both ConsumerAffairs.com and CreditKarma.com indicate an impressive number of Lending Club reviews that reach on average 4 to 4.5 star (out of 5) ratings.
A few of the Lending Club complaints are to be expected. Primarily, the nature of said complaints surrounds being pre-approved for a loan and then receiving a denial in the mail after the fact.
However, borrowers must keep in mind that Lending Club bases final approval criteria on aspects other than just a borrower’s credit score:
- Different Lending Club reviews reported a required credit score of above 700. While other articles claimed Lending Club would accept credit scores as low as 600.
- Borrowers in Iowa and West Virginia are not eligible to receive a loan from Lending Club.
- Borrowers with debt to income ratios that sit above 50% may be denied (especially debt such as car payments and credit cards or other unsecured loans).
- Borrowers must be employed and income verified.
- Over 80% of borrowers have no delinquency, judgments, or tax liens on their credit history.
- As with all credit inquiries, the borrower’s credit score will decline as soon as the Lending Club makes an official credit score inquiry.
- Lending Club borrower rates are dependent upon all of the above factors, in addition to financial market conditions.
- There are Lending Club fees for borrowers: 1% to 6% of the loan amount, further calculated depending on your loan grade.
It should be no surprise that all financial institutions are wary and consider several factors before lending money. Although the Lending Club complaints may be warranted at the individual level — statistically speaking, there are always outliers who have the occasional negative interaction with any company — they are few and far between.
Conclusively, however, as of this writing, both the Lending Club investing reviews and the borrowers’ Lending Club reviews point towards this dominant peer-to-peer lending company as a solid institution for both investing and borrowing.
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