Lending Club is the world’s largest online marketplace lending platform, established in San Francisco in 2006.
In 2008, it was the first peer-to-peer lender to register with the Securities and Exchange Commission and the first have its notes trade in a secondary market, the FOLIOfn trading platform.
Lending Club provides investors with opportunities to invest in personal and business loans, and also facilitates loans to medical patients.
Lending Club has an online application process in which you first specify a loan amount, loan purpose and credit score. Loan amounts can range from $1,000 to $35,000. Lending Club lists about a dozen loan purposes, including “Other.”
Credit scores are broken into ranges from excellent (720+) to poor (<600). The minimum acceptable credit score is about 660. You then enter identifying data and financial information, and give Lending Club permission to check your credit history and score.
Iowa, Idaho, Maine, North Dakota and Nebraska do not permit Lending Club loans. About 90 percent of Lending Club loan applications are denied. Lending Club sets the interest rate on approved loans and posts the loans on its website for investors.
The rates borrowers pay for loans can vary from mid-single digits to 29.9 percent. In general, Lending Club offers lower rates than banks.
The usual repayment period is three years but can be stretched to five years in exchange for higher rates and fees. Borrowers are charged an origination fee between 1.1 and 5.0 percent of the loan amount. Investors pay a 1 percent fee on all amounts paid by the borrower.
Investors can buy notes on loans for as little as $25. The business model is for Lending Club to buy up a loan note from the original lender, WebBank of Utah, and then sells participation in the note to investors.
Lending Club thus owns the notes and promises to pay investors the proceeds from the borrower’s payments minus fees. Therefore, investors are unsecured creditors to Lending Club — their loans are not backed by underlying property. The risk is that an investor could lose money if Lending Club became insolvent, even if the ultimate borrower was making timely payments.
Investors don’t have a say regarding the interest rate of a note, only the amount they wish to invest. The loan interest is taxable as personal income.
Consumer complaints and reviews
Lending Club has been a Better Business Bureau accredited business since 2008, and had an A+ rating as of December, 2015. Out of 123 BBB closed complaints in the last three years, 47 stemmed from advertising/sales issues and 59 were attributed to service problems.
Is Lending Club a good choice?
Yes, it is. Lending Club didn’t get to be No. 1 by mistake – it offers shrewd deals for borrowers and investors alike. Investors can invest in notes yielding anywhere from 6 percent to 26 percent, and most investors experience returns between 6 and 9 percent a year.
Compare rates and terms offered by multiple, vetted lenders at www.credible.com.
Eric Bank writes about small business, personal finance and science. He holds a master’s of science in finance from DePaul University and an MBA from New York University.