Are you passionate about Lending Club? Then be sure, you are going to have a very memorable journey with this article.
Yes, You heard right. I know you are planning to start your journey with this investing and borrowing platform. That’s why you need a complete guideline on it.
Keeping mind your queries, we’ve designed this article on Lending Club Review. And in this article, you will get all the answers that you really need to know to have a profitable journey with this platform.
What Is Lending Club?
Don’t you know about the lending club? Well, don’t worry. We are here to help you.
If you are facing any difficulty while taking a loan from the traditional lenders, don’t be upset about it. Here is another option for you, the lending club.
Lending Club is basically a peer-to-peer online lending platform. There are some investors, some lenders, as well as some borrowers who are participating in this online transaction.
Through a website, the investors help the borrowers by lending money to them directly. In this case, both parties are benefited, because of the interest rate per each loan.
Pros & cons:
Entirely, all things have a good side as well as a bad side. You have to look at both of them very carefully.
After that, you have to decide whether the thing is compatible with you or not. If it is good enough then you can use it.
Lending club is also indistinguishable in this case. It contains both positive as well as negative reviews.
Now I am going to give you a lending club review through its pros and cons. Then you have to decide whether it is trustworthy or not.
- Various filtering options:
There are many options you may find. So it is easier for you to determine which note you want to invest as well as which one you want to pass on.
- Hypothetically higher returns:
With the lending club, there remains the possibility of getting higher returns than the investment of type like traditional fixed income.
- Secondary market of better quality:
There remains an improved version of the secondary market. When I started my investment with the lending club, this secondary market started to improve itself significantly.
- Automated investing:
You can automatically invest money in the lending club. When you are busy enough to invest money or you don’t have the knowledge of investment, then by hiring a lending club, you can do your legwork properly as well as timely.
The automatic investment can also be done based on the traditional filters that you have created.
There also remain some third party tools which you can also use. That third party tools cost money. So, if you want to use it, you have to spend money.
- Adaptable spending options:
For various expenses such as moving costs or different vacations, you may obtain financing.
Besides, if you are willing to start a new business, the financing is there for you.
- Support particular investors:
When you are taking a loan from a bank, you are not only taking the loan but also paying the interest rate to the bank.
On the other hand, if you are taking a loan from the lending club, this means that you are supporting the investors by whom the portfolio is built.
- Faster turnaround of loan:
You need to fill up an application as well as give your information if you want to take a loan from the lending club.
If you are eligible for that loan, you can find the money in your account in a few days (it may take four days).
- There are not any kinds of payment penalties in lending club. If you want to pay off the loan early, you can do it without any kind of hesitation as well as an interest rate.
- Lending club contains a fixed amount of interest rate.
- The investment isn’t for everyone:
Unfortunately, not everyone can invest in a lending club. The reason is, in each and every state, it is not available.
You must have to fulfill some requirements to take part in the investment such as net worth as well as a specific amount of income.
If you want to take part, then these things are mandatory.
- No fixed returns:
If you search for a bank CD, you may notice that they get a return of a fixed amount.
But in the case of a lending club ,the return value is not fixed at all over the lifetime of that note.
Basically, higher returns can be seen by the investors, during the early one or two years as it takes time to mature notes.
Note that, the defaults can decrease the returns.
- Long time investment:
If you want to depart from the lending club, then it will take time to do so.
- Untested investment:
In respect to the credit card of the consumer, the notes are quite similar to them, in which we have numerous data.
So the lending club still remains a new sort of investment.
- Annual fee of 1%:
The annual fee on the lending club is one percent per each note inside the marketplace.
- Unsecured debt:
The debt of the lending club is quite insecure. Whenever the debtor defaults, the lending club may not be able to collect against that asset.
- Lower returns:
The historical returns of lending clubs have been modified from the original percentage of 9%-10% to the recent 4%-6% annually.
Is there any better investment for similar returns?
- Taxed at an ordinary income rate:
Actually, this is one of the biggest issues, particularly when you are around the extreme tax bracket.
If you place the investments of the lending club in the IRA account, then it is going to be best for you.
The reason is they are basically taxed at an ordinary rate of income.
- Several maintenances required:
It is better to invest manually if you are willing to get higher returns. But if you compare it with the automatic investment, then you can see that the manual investment needs more work to do.
- Origination fee:
You have to pay an origination fee for the loan. The value of this origination fee is between one percent to six percent of the amount of loan.
- Competitive investment:
Those who want to invest can find that there is always running a competition and this competition is violent for the borrowers with lower risk.
The beginner who wants to invest may also find a competition between the investors.
- A bad deal with lower credit score:
The borrower whose credit score is low can get the loan but it is not an easy job to get the approval.
But this is not a good deal for those who are struggling with the lower score of their credit because there is a higher rate of interest.
So you have seen both the positive side and negative side of the lending club. Now it’ s your turn to decide whether you should invest in the lending club or not.
Is The Lending Club A Good Investment?
If you are an investor who is looking forward to earn more money than the rate is going nowadays or if you are a borrower who wants to pay less for a loan than the bank, then the lending club is the right choice for you.
Nowadays, the banking system is being transformed by the lending club as they contain a peer-to-peer model that keeps all the promises.
When I first experienced the investment in this lending model, I was really marveled. So I decided to do this review.
Anyone, who wants to invest, can participate with as little as $1000 but if you want to invest more, you can invest the highest $20,000.
Lending club provides various categories of loans, like- medical, personal, business, and so on. So, I let it up to you to decide, whether it’s a good investment or not.
How Does Lending Club Investing Work?
If you want to invest in the lending club, you need to go through some procedures as well as follow some rules.
First, you need to sign up. It will take a few moments to be done. Note that funding your account can be done via emailing the check or through electronic funds transfer (EFT).
If you want to invest in the taxable account, you need to fulfill the minimum requirement of the lending club.
You need at least $1,000 for starting the investment. If you are willing to open the IRA, then you need at least $5,500.
In the next step, you have to invest a minimum of $25 per each note. You will see that all the notes are categorized from A1 to E5.
Here A1 is considered as lowest risk per lowest rate and E5 is considered as the highest risk per highest rate.
Pricing For Lending Club [Rates, Terms, Fees]
The current situation of your credit is related to the pricing for the lending club and this lending club review is going to help you in this case.
The lending club facts for the credit score of yours. The range of annual percentage on lending clubs is from 6.95% to 35.89%.
But there can be other fees depending on how you use this service. So now I am going to discuss the rates, terms as well as fees of the lending club.
You can compare the rates of lending club with the other lenders who undertake the fair-credit borrowers.
Moreover, those with less debt and a higher score in credit are composed to get the lowest rates in the annual percentage of the company.
A 60 month or a 36 month, repayment term can be chosen by the borrowers on a loan of the lending club.
After the 15 days of the elegance period, the lender charges an origination as well as a late fee.
The origination fee is 2 percent to 6 percent and the late fee is more than $15 or 5 percent of the payment.
On the other hand, there is no prepayment fee in the lending club.
Lending Club Investing Requirements
There are a number of requirements you need to fulfill if you want to invest in a lending club. Through this lending club review, you are going to be familiar with those requirements.
In every state, the notes are not accessible. Through the platform of the lending club, if you want to invest, you need to live in any of the districts or states in Columbia.
The states are- Arkansas, Alabama, Colorado, California, Connecticut, Georgia, Delaware, Hawaii, Idaho, Indiana, Illinois, Kentucky, Nebraska, Nevada, South Dakota, Tennessee, Virginia, West Virginia, Wisconsin, and so on.
If you are not a member of any state of Columbia, then you can trade notes through the secondary market.
Besides, you need to fulfil other requirements, that are given below:
- Income level:
In the case of most of the states, you may need to have a high amount of annual income which is $70,000 or more than that as well as need a net value of $70,000 or higher.
But in the case of the states of California, as an investor, you must have a high amount of annual income which is $85,000 as well as a net value of $85,000.
- Approved states:
In most of the states, lending club is accessible. But some states are contravening, such as Alaska, North Carolina, New Mexico, Pennsylvania, and Ohio.
- Initial deposit:
In case of starting the investment, it is necessary to have $1,000 in the taxable account. Moreover, for IRAs $5,500 is needed.
- Net worth:
If the total net value is more than $250,000 or $200,000(California), then there remains no requirement for annual income.
Lending Club Investing Risks
You want to invest but don’t want any kind of risk, that’s almost impossible. Every investment including the secure one also goes through some risks.
Like other investments, if you are investing in the leading club, you may have to take some risks. So, now I will talk about the risks you may find.
- Inflation risk:
You can face the inflation risk with the lower rates but the higher rates can reduce the risk.
- Marketplace risk:
The lending club can be bankrupted and this risk is known as marketplace risk. If you see the history, you may find this type of risk is improbable in the case of Lending Club but it’s not exactly impossible.
- Callable risk:
If the loans are paid precariously, then your return can be affected by this. So, for replacing it, you may have to find the other loan.
- Management risk:
The lending club has an annual fee and the rate is 1% for many years but in the near future, this rate may increase.
- Default risk:
The investments are not FDIC insured. They are also not equivalent to treasure notes or bank CDs. So there remain some default risks.
- Pricing risk:
You may also find some risk in case of pricing the loan.
- Diversification risk:
While investing with this model, it is necessary to have 400 notes or more than that; in simple words, more than $10,000.
The main reason behind this is, while you are dealing with loans which is really a small amount like less than 100, then there remains some risk through which the overall return can be affected.
- Liquidity risk:
The investment in Lending Club is a long time process. You can sell the loans on a secondary market, and it takes so much time.
As you can decide over which note you want to invest, you can easily overcome the risk.
Lending Club Investing Strategy
Now I will discuss the lending club strategy with you. I am going to tell you, by minimizing the risk of how I have maximized my return.
But before following my strategies, you just need to do research on your own investment.
So, here I’m showing you some filters that may guide you in the right path.
- Loan purpose:
I mainly focused on the customers, who were looking for reducing their debt and getting better rates.
- The minimum employment length:
The minimum length is more than one year for employment. It is better to have a longer length of employment.
- Loan term:
The loan term is only 36 months. But according to my opinion, it is not worth having an additional return of 2%+/- for the five-year notes. This may cause additional risk.
- Interest rate:
I prefer to select from the categories “B”, “C”, and “A”. You can call them a “butter” zone as I say. But try to avoid the notes which are lower quality.
If the rates of notes that are of type “A” is less than 7.5%, then I also try to avoid them.
- Credit score:
The credit score should be 675 or greater than that.
- The maximum ratio of debt-to-income:
There is a minimum ratio of debt to income in the lending club which is 30%. The ratio can’t be less than 30%.
- Public records:
I try to exclude loans that are with public records.
- Debt refinance:
It’s better to pay higher rates of interest than having the loans which can cause risk like the businesses which are new.
- Monthly income:
I read a number of previous reports that showed the fewer amount of defaults with the ranges of higher income. The monthly income should be $7,500 or more than that.
- Verified income:
At least, in the initial state, you need to search for the verified income. I also take a look at the applications of unverified income.
- Review status:
Of course. I desire that it has been checked over by the lending club. There remains a better chance that all the information about a loan is legit.
According to the report of the last two years, there were no delinquencies.
According to the last six months of inquiries, I decide on zero.
- Exclude already invested loans:
As I want to be sure that, I never invest again in an identical note, so I always check this out.
I must say that the performance in my past can’t indicate the returns of the future while using those filters.
While making an exception in those filtering, I face some questions from you all about the risks or the security.
Therefore, I encourage everyone to do research and when you find any suspect in any application, then you can skip it and try to find a better one.
If you can’t find any better application, then hold on, wait for some days and take a look again. You don’t have to rush at all.
Take whatever time you want, but wait for the good one and don’t get stuck with any bad note because of your hustle.
I suggest you build up a portfolio of more than 200 notes. It helps to remove many types of risks. The ideal strategy for investment is a total of eight hundred notes, in other words, mainly $20,000 for investment.
I further suggest you not to take the option of automated investment. You should use manual investment.
It is better for you to think about the investment of a lending club as the “slow in and slow out”.
The wonderful thing is the loan data is transparent in the lending club. Therefore, you can investigate the data by yourself.
So, you can determine if there are any misprice with the loan or not. That’s why I recommend analyzing borrowings.
Lending Club FAQ
While writing any kind of review I have to face many kinds of questions and I try to give those answers correctly.
The lending club review is not separate from them. Now I will show you some questions about the lending club that I faced while writing the review.
I am going to answer all those questions correctly and I hope that these questions and answers are going to help you a lot.
How Does A Lending Club Affect Your Credit?
Sometimes lending club can affect your credit for a moment. It evaluates the worthiness of your credit card.
The lending club will check your credit card, so that it can find out if you are worth taking the loan or not.
So, for this reason, the score of your credit card can drop for a while. But you need not to worry about that.
How Does Take It Time To Get A Loan From Lending Club?
Basically, it does not take much time to get a loan from a lending club. It needs some information from you, to validate the transaction.
If you are eligible for the loan and if you can fulfill all the requirements that are needed, then you will get the loan in a few days.
As the transaction is transparent, you can believe in the lending club. Mainly, lending club needs four days, so you can get the loan within four days.
Does The Lending Club Verify Income?
Your annual income may be verified so that the lending club can determine whether you are worthy for this loan or not.
Therefore, in the case of most applicants, who have applied for loans, their income is verified by the lending club.
After applying for a loan, the applicants go through the screening process. The data points about hundreds, is considered by this process.
It is needed to identify the applications that need further verification. The applicants need to submit some documents such as, tax records, W-2 forms as well as pay stubs, for the purposes of income verification.
Can You Pay Off A Lending Club Loan Early?
Sometimes people ask whether they can pay off the loan of a lending club early or not. Whether I have to face any charge for early payment or not.
The answer to the first question is yes. Of course, you can pay off the loan early if you want.
Moreover, you don’t have to face any kind of charge if you pay off your loan before the required time. So, don’t worry at all about this early payment.
Is Lending Club Legit?
If you search everything about lending club you will automatically know whether it is legit or not.
But to make your research easier, I will share my experience with you by giving the lending club review.
Lending club maintains a process of online application. through this online application, it is possible to get a loan more easily as well as more quickly.
Here you can also find a direct deposit system that will help you to get the loan in a short time.
Moreover, there is no rush about paying off the loan. You can pay off the loan whenever it is the best time for you to pay off the loan.
You will be glad to know that the lending club offers a very low amount of interest rate as well as a fixed amount of interest rate.
But it contains some origination fees. The origination fees between one percent to six percent makes the overall cost higher.
So, hopefully, this review was helpful to you. Now you know very well, whether the lending club is legit or not.
Who Shouldn’t Use A Lending Club?
Lending club is not for everyone. I have categorized a number of people who should not use a lending club.
If you feel that you are one of them, then it is better for you not to use a lending club for any kind of investment.
Now I am going to tell you about those categories, so carefully read them all.
- Investors with risk-averse:
The lenders as well as the companies of credit cards, deal with the defaults and the late payers most of the time.
The business which is based on the lending always builds that expected loss with the help of the income of their early projects.
However, any kind of platform such as lending club allows if anyone wants to pay lately because the delayed payment penalties help to prevent those kinds of behavior. But there remains no guarantee about that.
So, you will always face a default risk on those loans that the borrower of yours has taken from you.
But you won’t be able to share the risk with any other investors, because the lending club won’t allow you to do so.
The investors with whom all of you are lending some small amount of money, you can’t share the risk with them too.
Mainly, this helps you to balance the risk of every individual investor.
- Novice investors:
Although the lending club sounds so much appealing, but the truth that everyone must accept is, in the current years, the lending club is getting quite competitive.
As a beginner, you will find yourself as the competitor alongside those investors who have deep pockets in case of those borrow requests with lower-risk.
It can be worse, the investors who are experienced, have access to the resources.
With the help of those experiences of many years, they can locate the great opportunities as well as before you can see, they seize them up.
So, if you are a beginner or a new investor, then better options are there for you except this one.
- Borrowers with lower credit:
Lending club investigates your credit card. If your credit score is low, then you may think that you can’t get a loan.
However, this is not true. Lending club helps you by providing a loan when your credit score is very low.
But, getting a loan with a lower credit score is not a good idea. Probably, you will find that the rate of interest you have estimated is much more than that you would find via alternatives such as loan aggregators.
Nevertheless, if you are not able to get any loan from somewhere else, then this can be an option for you.
Just be sure about that, you price various lenders so that you can know if the offers that you get from the lending club is the best deal or not.
- Those who want personal touch:
If you are taking any financial decision, then it is better for you to take some personal advice.
Especially, if you can get expert advice, then it will be really helpful for you.
But if you decide to use a lending club, then you will not be able to get that experience of getting some personal advice.
Because, the lending club is an online platform. You just have to put all the information that is required and in response, you will get an offer.
But there you can’t get any context offered. For this reason, you can find yourself surrounded by a lot of questions but no answers.
As an early investor in a lending club, my returns were quite good during that period. At that time, I took the advantage of the interest rate of the credit card.
While you are considering many of your loan options, I must say that lending club or peer to peer lending means very much on the radar.
In this lending club review article, I’ve written the details about everything about the lending club.
I hope this was helpful for you while doing research on it. Try to look at both sides of the lending club.
After that, take the decision, whether you want you to invest in or borrow from the lending club or not.
If you have any further questions related to the lending club, please let me know, and don’t hesitate at all.
Copyright: Logo & logo elements own by LendingClub.com
John has been writing on financial topics from the beginning of his career in finance. He spent nearly five years as an emerging markets analyst in The USA and has written on a wide range of finance related topics.
- Investment professional with 8-year track record of delivering high-impact financial communications solutions
- Skill set includes financial writing, equity research, institutional marketing, and content strategy
- Experienced in developing custom content and thought leadership pieces to support business objectives while promoting brand awareness
- John earned his bachelor in science degree and master’s in business administration. He holds a CFA charter.