The idea of peer to peer lending – also known as social lending is hardly new. Families, friends, religious groups and community groups have long engaged in making loans without the formal involvement of financial organizations. Today, there are several online companies that are serving as matchmakers for borrowers shopping for lower interest rates and investors hunting for higher investment returns. Lending Club is one of these types of companies. Peer-to-peer lending is cheaper than consumer credit. Lending Club’s rate for the best credit risks is 7.88%, the bank rate for personal loans, on average, is over 13%. With credit sources becoming harder and harder to obtain, P2P lending with Lending Club has become a great option for borrowers to try out.
About Lending Club
Since making its first peer to peer loan in June 2007 up until December 18th, 2008, Lending Club has facilitated $23.6 million in loans, Bringing together borrowers with lenders through its online social network. Borrowers typically are seeking to refinance credit card debt or other higher rate loans, pay for one time events like a wedding or to fund a small business. On average the amount borrowed is $8,249
How Does Lending Club Work?
Lending Club primarily acts as the middleman between individual
lender and borrower members seeking unsecured loans ranging from $1,000 to $25,000. You get a 3-year, loan at a fixed rate The company runs a credit check disqualifies any applicants with FICO scores less than 660 or who fail to meet its other guidelines. The underwriting criteria for loans originated through the Lending Club platform are established by agreement with the
lender, WebBank, a Utah industrial loan company, which assigns the borrower loans to Lending Club after origination. Lending Club typically does not verify income and employment information, but it sometimes does so in cases involving larger loans or when conflicting information arises.
Lending Club then sorts each application into one of 35 loan grades and assigns an interest rate. Stated interest rates ranged from 7.37% to 20.11% as of Jan. 12, 2009, with higher risk loans bearing higher interest rates. Borrowers pay a processing fee determined by their loan grade that may range from 0.75% to 3.50% of the principal amount borrowed.
Borrower Requirements and Details
A FICO score of at least 660.
Your credit history should show no outstanding tax liens, collections over the past year, recent bankruptcies (in the past 7 years), or current delinquencies.
Borrowers must be a US citizen or permanent resident, and at least 18 years old with a valid bank account and a valid Social Security numbe
Your credit report should show a maximum of 10 inquiries in the last 6 months.
Your debt to income ratio (minus your mortgage) should be under 25%.
Your credit information must show certain limits on number of accounts and utilization.
The borrowing process:
The application process is free and takes only a few minutes.
Your loan will be graded based on risk (determined from your credit score, report and other factors).
There’s a processing fee of 0.75% to 3.00% of the loan amount based on that grade, this fee will be deducted from loan proceeds you receive.
Don’t need a Loan Then Make Money With Lending Club
How do Investors Make Money?
Like a bank, investors profit from making loans to borrowers and earn a rate of return on the loan. The average interest rate for all loans was 12.34%, with a median rate of 12.29%. Lending Club collects the borrower’s monthly payments and any late payment fees and directs them proportionately to each lender member’s account, minus a 1% service charge. Lender members may hold the notes until they are paid off or offer them for sale through FOLIOfn’s note trading platform, which was introduced Oct. 14, 2008
The interest rates charged by LendingClub currently vary from 6.69 to 19.37% after fees based on the credit grade assigned by Lending Club
The Risk
Like any investment that has double digit returns, there is a risk involved. The main risk associated with lending Club is loans are unsecured, and there is no guarantee loans will be repaid as expected. Some borrowers will repay their loans early, creating interest rate risk if rates have fallen. The bigger risk, however, is that borrowers will fall behind in their payments or default on their loans. However you will have all the credit history available to you before extending a loan. Delinquent accounts generally are handed over to outside collections agencies if borrowers are more than 30 days behind in their payments, but lender members’ returns decrease if borrowers default.
Lender Requirements and Details
You only need $25 to start lending.
Interest rates for the 3 year installment loans (with fixed interest rates and equal installments) range from 7.37% to 20.11% as of this time.
You pay a service charge equal to 1% of amounts paid by borrowers this is not an annual fee
You must be a resident of certain states to be a lender.
You need to make at least $70,000 in gross income (with a net worth of $70,000) or have a net worth of $250,000.
ROI Example
If an individual had invested $10,000 on June 1st, 2007 that individual’s account at Lending Club would have grown to $11,594 by November 2008 compared to other common investments or indexes such as the Standard & Poor’s 500 Index ($6,289), the Nasdaq Composite Index ($6,605), 1‐year CDs ($10,678) and 6‐month
Treasury bills ($10,501). This comparison factors in Lending Club’s 1% service charge but does not include fees and
other transaction costs for the other investments.
CBS News Report Video on Lending Club
All indications are that Lending Club is here to stay. With traditional banks facing mounting losses and less liquidity, they are taking less risk with their lending. At the same time there are more and more credit worthy people needing loans to funds events in their life. In this internet web 3.0 world they will seek out alternatives and Lending Club is one such option
Browwow and lend with Lending Club
1 comment:
Thanks for sharing such great post, it will surely help many people who want such detailed information about p2p. According to me lower interest rate is very much important and beneficial for borrowers.
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