Lending Club Review – Peer to Peer Lending Platform Review Comments15 Comments

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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.

Lending Club 1

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.

Lending Club 2

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.

Lending Club 3

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.

Lending Club Review

Rating: 4.4 / 5
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Lending Club Reviewed by Modest Money on .

Author Bio: This Lending Club review was written by , a proud staff writer for Modest Money!

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By : Andrew Black | 20 Sep 2013
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15 thoughts on “Lending Club Review – Peer to Peer Lending Platform Review

  1. Bryce @ Save and Conquer

    One other problem I have with any peer-to-peer lending is the amount of time it can take to get your money back. Loans at Lending Club are for 3 years. It will take at least that long to get your money back. It can take longer then 3 years if a borrower had trouble making payments and renegotiated their minimum payments.

    Reply
  2. a terrible husband...

    From what I understand the investment returns are taxes as ordinary income because it’s interest income. I’m not sure if that’s 100% true in all cases, but either way, it certainly puts a dent in the returns, particularly given the risk and relative treatment of an index fund.

    Reply
    1. Joshua from CNAFinance.com

      Hey terrible husband, thanks for your comment. This is very true. With most investments, interest earned is taxable income. However, the taxes are only a small piece of the interest earned not your total balance. So, in my book, it’s still worth investing!

      Reply
  3. Andrew@LivingRichCheaply

    I do have a small amount in lending club just for fun, but I don’t know if I’d invest a lot into it. I do think it is taxed as interest income. I think there are more investors than borrowers nowadays because there aren’t many loans that I’d like to invest in. I’m kinda conservative in the loans I invest in.

    Reply
  4. Micro

    I really like my account with Lending Club but their secondary market to sell loans isn’t very easy to work with. This isn’t an issue because I plan on holding things for the long haul. If I needed to access the money quickly, I would have some trouble getting access to the money.

    Reply
    1. Joshua from CNAFinance.com

      Hey Micro, thanks for your comment! I don’t know much about the secondary market, but could understand how that could be a bit lacking. When it comes down to it, I never invest money I think I’ll need access to before the investment is mature. So, I don’t think that would be a problem for me. Thanks again!

      Reply
  5. Justin @ RootofGood

    Good article on Lending Club! I was ready to sign up and throw $500 or so in to see what I can make without risking too much. But apparently they don’t accept new accounts in North Carolina! Boo. Anyway, looks like a neat program to make way more than what the banks are paying on deposit accounts.

    Reply
  6. Romona @Monasez

    This article really gives me a lot to think about. I’ve been looking into peer to peer lending so this was very helpful.

    Reply
  7. Stu

    Joshua,I think you did a pretty good job describing how LC works.
    I am very active in this area and have a regular blog about it at p2plendingexpert.com. You’re very right about the need to diversify loans and that interest is taxed as ordinary income. Like all fully amortizing loans (think mortgage), more of the payment goes to interest in the early months and more towards principal in the later months.

    keep up the good work.

    Stu

    Reply
  8. Equipment Finance - AGM Williams

    For personal loan, borrowing money for buying personal stuffs is not a good idea, I would rather spend them in some investment like opening a small business or real estate, that would be a great chance to generate income to cover your loan interest.

    Reply

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