Use this Lending Club review to decide if a p2p personal loan is right for you and how to get the best rate available
I have been following Lending Club reviews and other p2p loan sites for quite a while as an investor but had not yet applied for a p2p loan myself. I’ve talked to other borrowers and read Lending Club reviews but figured it was time to try the p2p personal loan platform out for myself.
I just got back last week from a financial bloggers conference in North Carolina. It was an amazing experience and a lot of fun but left me with about $3,500 in credit card debt. At a rate of nearly 15% (an APR of 16.2%), it’s not the kind of thing I wanted to keep on my credit card even after getting the 5% reward for my son’s 529 savings plan.
[Note: I originally published this Lending Club review in October of last year about my experience with getting a peer loan. I thought it would be a good idea to revisit the article given all the Lending Club news lately.]
Debt consolidation and paying off high-interest rate credit cards is the most popular use for p2p personal loans. The online loans generally have a higher rate than secured loans like mortgages but are much lower than credit cards so it just makes sense to get a cheaper loan to pay off the cards.
I’ll review my experience with getting a Lending Club loan below as well as the process and other reviews by borrowers. It’s actually a pretty easy process. It took me less than 15 minutes and the loans can be funded as quickly as a day.
Lending Club Review of the P2P Loan Process
The first thing you see clicking through to the Lending Club website is a small box to add quick information on your loan like amount, loan reason and an estimate of your credit score.
Once you click through, you're taken to a page for personal information before Lending Club can give you a rate for your loan. It is all pretty standard information including name, address and income. None of this affects your credit score.
The approval process takes less than a minute and Lending Club will base your interest rate on your credit score estimate. Rates for borrowers with very good credit scores are extremely low but even the higher interest rates are generally lower than those you’ll get on credit cards. This is why Loan Consolidation accounts for about three-quarters of all Lending Club loans, to pay off high interest credit cards and other loans.
My own rate turned out to be 11.5% for an annual effective rate of 14.4% which was a little higher than I expected but still well below the rate on my credit card.
Besides the interest you save by consolidating higher-rate loans, p2p loans are reported on your credit report as non-revolving loans because they have a fixed rate and get paid off by a set date. These types of loans don’t count against your credit score as much as revolving (credit card) loans so your credit score may increase after paying off your other debt with a p2p loan.
If you agree to the interest rate and think you can manage the monthly payment on the p2p personal loan, clicking through will take you to the final page for personal information. On this page, you are going to enter your contact number, employment status and your social security number.
The site uses 128-bit encryption for its p2p loan processing so you can be sure that your personal information isn’t being hacked. This level of security is just as safe as they use on websites for traditional banks.
Once you agree to terms on a Truth in Lending Disclosure Statement, your loan is complete and ready to be funded by investors. Lending Club complies with a pretty extensive review of state and federal regulations where it provides loans so you’ll see all the same forms you see in a traditional loan.
Lending Club Deposit Time and Verification
Lending Club does not attempt to verify the income of all borrowers on the platform but does do some level of verification on about three-out-of-four borrowers. This is either through requests of financial documents to verify your income or by confirming your work email address to verify the source of your income.
Lending Club checks income through documents like W-2s or taxes on about 29% of borrower applications. It checks the income source, usually through confirming your work email address, on approximately 40% of borrower applications.
Loans are targeted for verification for one of the following reasons:
- Based on information in the borrower’s application
- Conflict between how much income is reported and the job title
- The application is suspected as fraudulent
- A random selected application
It’s important to understand that just because Lending Club asks for verification on your application, doesn’t mean it suspects you of fraud. It selects some applications at random for verification.
Your income doesn’t have to match up exactly upon verification, it can be as much as 10% higher or lower and still pass as “income verified”.
Lending Club states that the entire application, approval and funding process typically takes about 7 days but that it may take a little longer. As both a borrower and an investor on the site, I can confirm this time frame for the loans.
If the company does request additional documents besides your loan application, it is usually one of the following:
- Tax forms like a W-2 or 1099 or your tax return
- Bank statements or pay stubs and proof of alimony or child-support if claimed
- Proof of address or identity through a government-issued photo ID and utility bills
None of the Lending Club borrower verification processes takes more than a day. Any delay is usually from the time it takes to gather the documents and submit them by computer.
Even if Lending Club marks your loan for verification, it will still be posted to the platform for investors to fund. This means you can still get your loan funded and deposited quickly if you work on verifying your income.
On the other hand, if you don’t provide the documents for verification, even a loan funded by investors will not be released to your bank account. Lending Club will give you time to provide the documents but if you can’t verify your income then it will just return investors’ money rather than deposit it into your bank account.
After your loan is funded, it will normally be no more than a day before Lending Club releases the funds and makes the deposit into your bank account. That will be your funding date and you will usually have about 28 days until your first payment.
Lending Club Review: Who Owns my Loan?
Lending Club doesn’t actually fund loans itself. It is a peer-to-peer website connecting investors directly with borrowers. Once your loan is approved, it goes on the website where investors can decide if they want to fund it.
There is a huge demand from investors for p2p loans right now. Compared to interest rates on other loans and bonds of 5% or less, returns of 9% and higher on peer loan investments is extremely attractive. Almost all Lending Club loans are being fully funded very quickly.
In fact, the biggest complaint I hear from investors is that there are too few loans available to fund. The larger investors are scooping up lots of loans, leaving fewer for individual investors to pick over.
After your loan is funded, you’ll need to verify your identity with Lending Club. This includes verifying your bank account, confirming your email and possibly submitting a few extra documents.
Not all loans need extra docs but you might need to email paystubs or bank statements. These can all be scanned and emailed so it is a fairly easy process. If you don’t have these, you can get copies from your work or your bank. The biggest delay in the entire process has been this verification stage so make sure you get your documents sent in as soon as possible.
Lending Club has been in the news lately and the stock has fallen 55% just this year. None of it affects the safety of the p2p loans on the site, those are all originated by a separate bank and held by investors. It seemed an executive and some on the staff changed the dates on a small fraction of loans to meet criteria for a special investor. The CEO of the company was asked to leave and Lending Club is working with its largest investors to keep them funding loans. Citigroup has recently agreed to help fund loans and it looks like everything is returning to normal.
Lending Club Review: Getting Paid and Paying your Loan
Lending Club will make a deposit into your bank account, usually less than a dollar, to verify the account. After the deposit is made, you enter the details on the Lending Club website to confirm your account.
This is when Lending Club is going to run a hard inquiry on your credit report. The previous check was what is called a soft inquiry and doesn’t affect your score. A hard inquiry might lower your credit score for a few months but your loan rate and details won’t change.
If you get your docs in and confirm your bank account, loans usually appear in your bank within a couple of days. The whole process can take less than five days for most p2p borrowers.
Lending Club will reduce the amount you get by between 1% to 5% for its origination fee. This depends on the loan grade from A – G but most loans cost the 5% origination fee. It’s not a big amount, only $144 on my loan and still cheaper than the interest on credit cards or fees at some traditional banks.
A month after your loan is approved and funded, you’ll start making payments. There is no fee for automatic withdrawals from your bank account but Lending Club does charge a $7 fee to process mailed checks. Most people select the automatic ACH payments which will come out each month until your loan is paid.
Lending Club doesn’t charge a fee if you pay the loan off early so your p2p loan should be prioritized along with your other debt to pay off quickly. You can make one-time extra payments or just increase the monthly amount you pay on the loan. Make sure you pay your loan on-time every month. Lending Club charges a late fee of $15 if your payment is late by more than 15 days.
Lending Club Review: Customer Review
Lending Club provides several reviews and testimonials from borrowers on its site. I liked the following video by Ryan & Melissa Mahler on how they used a Lending Club loan to pay off credit card debt after moving their family across the country.
They hit on a big reason p2p loans are becoming so popular for debt consolidation. Consolidation means you have just one payment instead of having to make separate payments to different credit card companies or other creditors. It can really take the pressure off of paying down your loans.
As for my loan, I had no complaints about the Lending Club process on my p2p loan. I am making extra payments to have it paid off before the 36-month maturity to save on interest but I’ve already saved money by paying off my credit card debt.
Lending Club Review Summary
My borrower experience with Lending Club was good and the process was as easy as I had heard from other borrowers. While rates can be pretty high for some p2p borrowers, most people will find that they save money on credit card interest and it’s nice to make just one monthly payment instead of several.
- Loans take as little as 5 days to fund with rates ranging from 6.16% to 35.89%
- Fast application won’t affect your credit score until you accept the loan terms
- Average borrower saves up to 30% annual interest against credit card rates1
- Some borrowers will not qualify and rates can be high for high-risk
- All the normal risks of a loan apply (see below)
Lending Club Review of Borrower Complaints and P2P Risks
I did a full article on the three biggest p2p risks to avoid for borrowers but thought I would recap some of the most common complaints here to round-out this Lending Club review. While it's not a problem for Lending Club or the peer-to-peer loan sites I cover, there are some personal loan scams out there you need to watch for as well.
I like the idea of connecting borrowers directly with investors and the rate savings borrowers that can benefit borrowers but it’s not for everyone.
1) Interest rates on Lending Club can still be really high for some borrowers. While Lending Club advertises that borrowers reduced their rates by an average of 32%1 when consolidating high interest credit cards, the rate can be as high as 35.89% on riskier loans.
The best way to confront this is to plan ahead for when you are going to need a loan and increase your credit score with these 21 steps. Take out a shorter 36-month loan and pay it off as early as you can with no pre-payment penalty.
2) If you miss a payment, Lending Club is going to call just like any other creditor. Even though Lending Club doesn’t hold the loans itself, it still wants to see as low a default rate as possible. Lending Club will make a courtesy call to connect if you miss a payment and will send out an email. You’ll also receive a regular mail letter but then the loan will be sent to a collection agency.
P2P loans are just like any other loan and creditors will want to collect on the loan. Make sure you only borrow as much as you can pay off and make sure you make on-time payments to avoid those annoying phone calls.
3) Bad credit borrowers may not be able to get a Lending Club loan. Lending Club, and most p2p loan websites, are only making loans to fairly good credit borrowers. Your credit score needs to be 640 or higher to get a loan on Lending Club and it will need to be well into the 700s to get a low interest rate. For borrowers with lower credit scores, I usually recommend PersonalLoans which will lend to borrowers with poor credit.
The higher credit score requirements are not necessarily a bad thing for p2p borrowers. With rates around 36% for high risk borrowers, the rates for sub-600 borrowers would be too high to manage. It wouldn’t be financially responsible for the borrowers, the p2p platform or the investors. If you don’t qualify for a Lending Club loan, take a few months to improve your credit score and reapply.
Besides Lending Club, I also recommend SoFi for personal loans on good credit. SoFi not only issues personal loans but its mortgage rates are some of the lowest I've seen and it can refinance your student loans as well.
There are still a lot of questions out there about Lending Club loans and whether the new p2p loan opportunity is legit or a scam. Having taken out a p2p loan myself and studied the topic as an investment analyst, I can say that it’s a legitimate and healthy part of American finance. There are risks but no more so than any other loan product. Just like any other debt, it can be used as a tool to help build your financial future if you use it correctly.
For investors, Lending Club offers a great bridge between the safety but ultra-low rates of bonds and the riskiness but higher returns of stocks. Low Volatility. Monthly Cash Flow. Solid Returns. Invest In Lending Club Today!
Survey notes for Lending Club Review 1) Based on responses from 14,986 p2p loan borrowers in a survey of 70,150 randomly selected borrowers conducted from July 1, 2014 to July 1, 2015, borrowers who received an unsecured loan online to consolidate existing debt or pay off their credit card balance reported that the interest rate on outstanding debt or credit cards was 21.8% and average interest rate on p2p loans via Lending Club is 14.8%
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.