LendingClub Review: Another Peer to Peer Lending Marketplace

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Try it Now! Join Lending Club.LendingClub is another player in the growing peer to peer lending marketplace and one that I signed up with despite my reservations with the whole peer to peer lending craze. I joined because online savings account interest rates have fallen sharply in recent weeks because the Fed lowered the target funds rate so quickly. With the stock market in turmoil and other investment options less attractive, the idea of peer to peer lending has gotten more appealing.

Sign Up Today!

The idea behind peer to peer lending is that you lend a little bit of money across numerous loans. By diversifying, you lower the risk. If one loan defaults, you lose only a small amount. As a relatively risk averse person, I don’t like any loans defaulting but you accept a higher rate of return for that risk. When some default, the rate of returns lowers and you get somewhere closer to market rates. It’s the same strategy banks use, except “little” for them is many hundred thousands of dollars!

LendingClub is pretty much the only game in town as Prosper just entered a quiet period. LendingClub just exited a quiet period because they had to register with the SEC since the loans are considered securities. Prosper may never leave the quiet period but LendingClub has, so you won’t have to worry about that in the future. One nice benefit of the loans being registered as securities is that you can sell your interest in the secondary market!

Account Signup

The signup process was easy and I had an account up and running within minutes. Setting up my account so I could begin lending was also trivial, a four step process of entering my personal information, bank information, and some association information (school I went to, employer, etc. but these were optional). The account process proceeds with the typical bank account verification process of small deposits.

Default Rates

It appears that LendingClub’s default rate and other lending stats are rosier than the likes of Prosper and others, but that could be because they are much newer to the game. Techcrunch did a brief writeup on LendingClub and noted the same thing about the default rates, expecting them to rest close to what Prosper was seeing. Ultimately it appears that both should have similar statistics with regard to late payments, defaults, and other lending related statistics.

One thing that does give me a little faith in their system is the borrower requirements:

Lending Club only accepts borrower members who are U.S. residents and whose FICO score is at least 660. Borrower members must also meet additional credit criteria:

  • a debt-to-income ratio (excluding mortgage) below 25%, as calculated by Lending Club based on (i) the borrower member’s debt reported by a consumer reporting agency and (ii) the income reported by the borrower member, which is not verified unless we display an icon in the loan listing indicating otherwise;
  • a credit report without any current delinquencies, recent bankruptcy, collections or open tax liens;
  • at least four accounts in the credit report, of which at least three are currently open;
  • no more than 10 credit inquiries in the past six months;
  • utilization of credit limit not exceeding 100%; and
  • a minimum credit history of 12 months.

That already raises the bar.

Next Steps

The next step is to fund the account and start reading up on the loans!

Sign Up Today!

{ 12 comments, please add your thoughts now! }

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12 Responses to “LendingClub Review: Another Peer to Peer Lending Marketplace”

  1. Patrick says:

    Jim, I’ve got a little bit of money in P2P lending. I only recently started and don’t have anything to report other than how the process works. I think it is an interesting process, and a great place to get loans as a borrower.

    For lenders, the opportunity is there, but there are associated risks. For now, I only plan on having a few hundred dollars in place – a very small portion of my portfolio, and something that if I lost entirely wouldn’t make me happy, but certainly wouldn’t break me either.

  2. Pinyo says:

    I haven’t got my referral bonus yet, but thank you. I have been looking at LendingClub vs Prosper as I loaned out money. I believe that LC borrowers tend to have better credit profile than Prosper borrowers.

  3. Pinyo, I don’t think that you will get the $25 bonus unless a person opens an account with $500 in it. You get a $50 bonus if a person signs up with $1,000. I wrote up a detailed explanation of the referral programs of Lending Club and Prosper because they have various time limits and other restrictions. I had to remove the information because I was immediately smacked down in the google rankings for a new site writing too much information about a referal program. Google assumes too much referral program info is spam from a new site. (My rankings recovered after removing the information.) If a largish personal finance blog would like me to guest post the information for your blog, please contact me.

    “If you think LendingClub borrowers are on the whole “better” than Prosper, I would take a step back and re-evaluate because they will be roughly the same.”

    Overall, the defaults will be lower at Lending Club because they deny a huge amount of loans based on credit risk. Many of the loans that they deny would fund on Prosper. However, for an equivalent credit risk, a borrower on Lending Club will probably have the same default rate as on Prosper. See my post on Lending Club Denying most loans and on the Rejected Loan Statistics.

  4. Mike S. says:

    These guys at Lending Club are using the bait and switch tactic to get your business. When i applied for an auto loan on Lending Tree, they responded with a 7.370% fixed APR. This was after verifying all my info and running a credit check. When i followed the link they sent in the welcome email, i once again had to fill out the loan “paper”work on their site. I am sure another credit check was completed, so that’s TWO inquiries on my credit history. And the worst part is they gave me a rate of 12.66%! Plus they charged me $450 (or more) fee for the loan. Great business tactics! Bait and switch like some low-life used car dealer or gray market online electronics store.

  5. Jay says:

    How did you sign up if you are a resident of the state of Maryland? For some reason MD is not listed in the states….

    • Michae says:

      Maryland Residents cannot bid on these types of Loan. We used to be able, but now they say it’s because of the Maryland Government…

  6. Don says:

    I also live in MD and was wondering the same thing.

  7. Taylor says:

    General comment about all posts – They should be clearly dated. The only way I can tell to determine the original posting date is to look at the comments.

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