Lending Club is the chief facilitator of peer to peer loans in the country. Peer to peer lending is growing in popularity and is allowing borrowers to sidestep the traditional process of getting a loan through big lenders. In peer to peer lending, investors put up the funds necessary to fulfill the loan applications of borrowers.
Lending Club was established in 2006 and has quickly grown into the largest peer to peer lending operation in the United States. They have already facilitated more than $255 million in loans through the website.
Understanding Lending Club
Lending Club establishes the connection between borrowers in need of funds and the investors who have the money. The site uses an online application process where borrowers fill out the required data for a loan request. An instant credit check is performed by Lending Club staff and an interest rate will be quoted based on the applicant’s credit history provided the borrower meets eligibility requirements to participate.
Once the applicant is deemed eligible for the loan, the loan will go through a funding time period where investors get to review the applicant’s information and loan request. The entire loan process can take up to two weeks or more. The more complete the applicant’s documents are, the faster the loan is usually funded. Approved loans will allow applicants to get their funds through an ACH transfer. Lending Club establishes the repayment process and will accept the borrower’s payments and then distribute them to the investors.
Lending Information
There are two types of unsecured loan terms available through Lending Club. Applicants can choose either a three year or a five year amortized loan ranging in amounts between $1000 and $25,000. The interest rates are set based on an applicant’s credit background. Those who have the best credit scores will achieve the lowest interest rate on the loan. The current interest rate range for Lending Club stands between a low 5.42% and a high 21.59%.
For the investor, lending funds to peer to peer loans allows a diversification opportunity outside of traditional stocks, bonds, and real estate. The investors are allowed to create collateralized debt obligations when they fund the borrowers request for loans. As per past performance, Lending Club investors have earned a 9.5% rate of interest. This calculation includes various fees and defaults. Lending Club does have a reputation for having only a 3% default rate in its history.
There is a caveat for investors with Lending Club. Not all individuals can become investors through the site as there are stipulations based on where a person resides as to whether they can invest funds in Lending Club.
Overall, Lending Club’s practices appear to satisfy the needs of those involved with peer to peer lending. Lending Club is continually growing and facilitating loans for a variety of reasons including debt consolidation, home repair, tuition and expenses, and auto financing.