Any Lending Club Review must begin noting that Lending Club is one of the largest peer-to-peer lending companies in the world, originating more than 30,000 loans worth more than $300 million since the company’s inception in 2007. The company has raised more than $46 million in capital during a series of funding rounds and existing investors include Morgenthaler Ventures, Norwest Venture Partners, Foundation Capital, and Canaan Partners. Initially positioned as a social networking service, the company has evolved into a lending giant that fills the gap created by the tighter lending restrictions of the nation’s largest banks.
The company’s founder, Renaud Leplanch, is a French native with experience as a securities lawyer for the New Yorkarea. He got the idea for Lending Club after starting a small business with funds obtained from a credit card with a high interest rate and learning belatedly that his friends and acquaintances would have lent him the money at more attractive rates. He envisioned the company as a more direct path for private lenders and borrowers to come together without the interference of big banks as the middlemen between them.
Lending Club reviews and targets credit worthy borrowers with high credit scores, rejecting any applicant with a credit score below 660. This means that the company regularly rejects around 90% of the applicants that apply for loans. This focus on the credit score of the borrower reduces the risk of default on the loans issued by the company, increasing lender confidence that the money extended by loans will be fully repaid. As of the beginning of 2011, less than 3% of the loans issued through the company were in default.
Lending Club provides the lenders with all of the information they need to make the determination of which loans to fund. The company has an algorithm that categorizes and grades the loans based on the information provided by the borrower and the information provided by the borrower’s credit report and score. After the loan has been graded, the loan application is assigned an interest rate and released to be reviewed by prospective lenders. The choice of which applications to fund and the amount to provide to each borrower is left up to the lender.
Many lenders have posted positive Lending Club reviews because they can receive a larger return on their investment than they would receive if they invested their money in traditional investment vehicles. Many borrowers like Lending Club because they can receive loans at lower interest rates than they would pay with credit cards and many other types of loans. In the beginning of 2011, Lending Club reported that the average interest rate for loans facilitated through the company was 11.37%.
Borrowers that are interested in obtaining a loan through Lending Club create a loan listing for the amount that they are interested in obtaining by supplying the company with details about themselves, their credit history, and why they are requesting the loan. After the company has obtained the applicant’s credit report, the loan request is scored, assigned a letter grade between A and G, and assigned an interest rate. Each letter grade is further divided into 5 subcategories to provide the lender with the best information possible about the risk of funding a particular loan. The loans can be prepaid at any time and there is no penalty for paying off the loan early.
Lenders choose which loans they would like to fund by browsing through the listings of loan requests and reviewing the information available about the loans they are interested in. The minimum investment for each loan chosen by the lender is $25, but the lender can choose to fund as much of the loan as they wish, up to the total value of the loan request. Payments for the loans are automatically deducted from the bank account of the borrower and deposited into the account of the lender to be withdrawn or reinvested at will.
Lending Club makes money by charging the borrowers and lenders small fees on the loans between them. Borrowers are charged an origination fee based on the grade given to their loan request, currently 2% for loans graded with an A, 4% for B-graded loans, 4.5% for C-graded loans, and 5% for loans graded D or lower. Lenders are charged a fee of 1% on all amounts paid to them by borrowers. We don’t have many Lending Club Complaints about the fee structure.
Finally, our Lending Club review shows that the company is one of the only peer-to-peer lending companies to have its offerings registered as securities with the Securities and Exchange Commission. The company completed its SEC registration in October of 2008 and has posted its prospectus on its website. This is a big plus in our review. Any notes issued after October 14, 2008 are considered to be securities and can be brought or sold on Lending Club’s Foliofn trading platform before they have reached maturity. The secondary market for Lending Club’s peer-to-peer loans allows the prospective seller to set the price that they are willing to sell the note for and buyers can choose to accept the offers listed, no negotiations allowed. This allows lenders to sell the rights to loans they are no longer comfortable holding. It’s safe to say that there’s no Lending Club Scam.