Lending Club Review – Peer to Peer Lending Platform Review 15 Comments
Hey everyone, thanks for joining me for today’s review. We’ve been talking a lot about investing platforms. I wanted to hold tight to that, but bring something new at the same time this week. So, let’s talk about what I find to be one of the most interesting forms of investing, peer to peer lending.
There’s a company out there called The Lending Club that claims to be the biggest player in the peer to peer lending game, but are they? If so, what’s so great about The Lending Club? Is there anything bad that could be said about them? I’ll tell you all of that in today’s review!
The Lending Club Short Review
The Lending Club Pros – They are a big player! At the time of writing this article, the lending club has funded more than $1.7 billion in loans, that’s no small cash! Peer to peer lending can get pretty risky, but to combat that, The Lending Club offers a way to set the level of risk you’re comfortable with. I also really like the returns as they usually range from 5% to 13% depending on the risk you’re willing to take. Finally, from a borrowers standpoint, it’s an easy way to get the hard loans!
The Lending Club Cons – The Lending Club only has 1 major drawback. For the busy investor, the time it takes to rummage through the available loans and find ones that you’re comfortable with funding can take some time. There are tons of loans to fund at any given time, and time is money. So, you’ve gotta decide if the time spent sifting through the available loans is worth the return on investment of both funding and sweat equity.
The Lending Club Overall – The lending club is a great company. They’ve got experience, funding and capabilities that go far beyond the vast majority of their competitors. From a borrower standpoint, the fees are incredibly competitive and money is easy to access. There’s no reason not to borrow from The Lending Club. However, from an investors standpoint, you’ve gotta decide how much money your time is worth to decide if this is going to be a good option for you. On a 10 point rating, I would give The Lending Club and eight!
The Lending Club Long Review
OK, lets get into the juicy details. When thinking about peer to peer lending as a way to invest, one of the first things you’re going to want to look at is the credit profile of the average borrower to be sure the risk isn’t going to be too high. That being said, the average borrower at The Lending Club has a credit score that sits around 706, which is pretty good.
With peer to peer lending, it’s important to remember that credit score isn’t the only gauge of risk. For instance, someone with a good credit score can also have a high debt to income ratio. If that’s the case, that borrower may not be able to pay off their loans because they have overextended themselves. That being said, the average Lending Club borrower has a debt to income ratio of 15.8%. Although it’s not incredibly high, it is getting close to where banks would generally cut someone off. One of the reasons many people seek out peer to peer lending in a pinch.
For those with limited capital, one big question you have to ask is, “How much money do I have to invest to get started?”. As far as The Lending Club is concerned, you can fund loans with as little as $25, but as far as I’m considered, that’s not enough. We’ve all heard the phrase, “Don’t put all of your eggs in one basket.” It’s a phrase that’s never more true than when it comes to investing.
As a smart investor, you are going to want to add a little diversity to your investment profile to protect you from taking on too much risk. I do this with my stock and bond investments as I would with any other form of investment. That being said, I would never put more than 10% of my eggs in one basket, and that’s only if the basket was very pretty! If you are going to start with a small amount of money, I would say to start with no less than $500. This way, you can fund 20, $25 loans or put more of your money into lower risk loans and only give smaller high risk loans. Let’s face it, someone is bound to default some time, if you don’t diversify, you really could lose!
For The Borrower
OK, so I’ve talked a lot about the investing side but I haven’t really touched much on the borrowing side. The truth is, Lending Club is great for borrowers. Because you’re borrowing from peers, you’re not going to pay as high of an interest rate as you would in most cases borrowing from a bank.
As with any loan, the interest rate that you pay is going to go up with bad credit and down with good credit. Other factors like your debt to income ratio will also play a role in the interest rate that you pay. None the less, most interest rates range from 7% to 15%. So, it’s a very competitive atmosphere for borrowers.
The Lending Club Overall
As I stated in the short review, the Lending Club is a great company with tons of experience. They are and always have been very transparent with stock holders, borrowers, and lenders alike. The interest rates for borrowers are competitive and profits for lenders are on the high end of the chart. The only negative thing that I can say about Lending Club is that for investors, searching for loans to fund may take more time than desired. However, as the years pass, they continue to develop great tools for the lenders dashboard that reduces the time it takes to search for a loan to fund. Overall, I give them an 8 out of 10. The Lending Club is definitely one I would recommend to a friend or family member who wants to borrow or invest money!
Also check out Lending Club as a borrower if you need a loan.
Lending Club Reviewed by Modest Money on .