Peer to Peer Lending (or P2PL) is an industry that’s still in its infancy. But in the United States, it’s not altogether clear whether the P2P ethos is going to survive! Many of the early US P2PL players have been co-opted by the large financial institutions they were meant to supplant. Next time you’re thinking about investing or borrowing with an American company that’s nominally “P2P”, read the fine print and see where your money is coming from.
That said, there are still a couple of American lenders that still hold the P2P line pretty well, Lending Club being the most well known, along with Prosper. Lending Club is coming off of a big year. In 2014, LC had the biggest IPO of the year, was valued at over $8 billion, and reported more than $6 billion in loans issued. For a business that, at it’s core, is just people lending money to people, this was quite an accomplishment. In 2015, Lending Club is still going strong, and is about to complete its first decade of operation.
So, does Lending Club still have what it takes to be a compelling lending option to a diverse array of American borrowers? And will investors still have something to smile about when they see their returns? The answer isn’t as simple as you might think, but I will say there is still plenty to love about Lending Club, all of which I will make clear in this Lending Club review.
First Review Impressions
So why P2PL at all? Well, Peer to peer has a lot of advantages over traditional lenders. First, banks take a lot of time to issue loans. They also tend to have high standards for their borrowers. People with mid-to-low credit may be denied a loan entirely, or given an APR that’s in the stratosphere. There are all kinds of P2P companies, some of which cater directly to folks that are denied loans by these institutions. Second, because these loans are financed by individuals bidding on them in a “reverse auction” format, loan rates are driven lower, at least in theory. In true P2P, rates go as low as an individual investor is willing to risk.
Lending Club doesn’t totally solve either of these problems. In the case of high standards from traditional loan providers, Lending Club also expects a lot from their prospective borrowers. their minimum accepted credit score is 640, which isn’t that low. But at that level, a borrower may have an APR in the upper 20’s per cent! That’s not what I would call affordable, so right away this is going to put a Lending Club loan out of reach for many people. This is not necessarily a bad mark for Lending Club. They’ve got to be picky. Otherwise, users would default all the time, which would jeopardize the other side of their business, the investors. Most borrowers see interest rates in the 7 to 15% range. That’s not so bad.
In the real world, some users pick Lending Club because they have no other option, even if the interest and fees paid are pretty expensive. Accessibility and convenience is a key leverage point for Lending Club, and a key to their continued success. As always, look for the best loan available if good terms don’t seem to materialize. But even if you can’t secure Lending Club’s best rates, you can be sure that this is reputable company. There won’t be any surprise fees, and even their middle rates can save you money, especially if you’re paying off a credit card debt or other expensive loan.
In the case of investors driving down interest rates through competition, it doesn’t quite work that way with Lending Club. Borrowers are lumped into “Loan Grades” according to their credit score and Debt-to-Income ratio. Interest rates are pretty much set in stone from there, so there’s no real “Reverse Auction” power happening. Borrowers get what they get, as do investors. Again, this isn’t necessarily a negative comment. In fact, it’s all pretty transparent. Borrowers will know exactly what they’re getting, and investors will have a very good idea of the default risk they are taking on. Whether individual borrowers will be able to qualify or afford the loans…that’s another story. But for highly qualified borrowers, Lending Club personal loans may be the cheapest and most convenient option in the country.
A Deeper Look
So you get the basics. But how does borrowing and investing look for real users. The average 36 month personal loan APR is 11.72% at the time of this writing, 60-month 15.67%. There is no fee for early repayment. Borrower candidates that I can see benefiting from this model, at these rates, are high-credit-score candidates who need money fast, but don’t want to get screwed by usurious quick lending loan sharks. For these folks, this will be an affordable loan, provided faster than could be had through a bank. Lending Club is especially great if you can afford to pay off your loan faster than the 36-60 month loan terms. That’s where you really save. People who use Lending Club in this way love it!
For lender/investors, users are seeing an average 8.6% annual return. I like that number. Investing with Lending Club is more “hands on” than other investment forms. You’ve got to do a fair bit of mucking around on the loan forum, jumping on promising loans when you find them. Your success as a Lending Club investor depends entirely upon your energy, commitment, and skill. If you fund hundreds of quality loans, you can see returns that well exceed 10%. But then, you’ve got to put in the work. With Lending Club, you’ll get out what you put in more than any other investment form I can think of.
Final Thoughts on Lending Club
So to me personally, Lending Club is more attractive to the lender than the borrower. This is not to say that there isn’t a certain type of borrower who will love Lending Club. To reiterate, this is a borrower with strong credit credentials, a need for fast lending, and the ability to repay faster than the given terms of their loan. To me, it’s hard to imagine this candidate not having even better loan terms available from other providers, but let’s say there aren’t and you can’t wait. If that sounds like you, Lending Club will be your best friend.
Investors, especially those who like to tinker, will really like Lending Club. While 401(k)s and IRAs are available, the ideal investor candidate will be someone who is interested in the P2PL format for its own sake and will savor the hunt for juicy loans! These folks can see awesome returns, even better than passive investment options like set-it-and-forget-it stock and bond funds. But it takes some work and experience to learn the system, what to look for, and how to make the most money.
At the end of the day, Lending Club is a quality company, though one that isn’t right for everybody. If it’s a good fit for you, you can rest assured that it is a reliable service. Lending Club has very detailed, transparent terms, rates, and user statistics. The risk that is involved is laid out on the table, where everyone can see it. Whether this is a system that works for you, that’s up to your best judgment. But for certain individuals, Lending Club’s take on P2PL will be both profitable and inspiring.
Also check out Lending Club as a borrower if you need a loan.