Even 10 years ago, getting a personal loan to pay off debt wasn’t unusual…except that the loan didn’t come from a bank. It came from other people just like you and me.
Today, Lending Club is the largest peer-to-peer lending network that offers borrowers competitive personal loans for any purpose that are financed by lots of individual investors who chip in amounts as little as $25 to each loan. Founded in 2007, Lending Club has made over $11 billion in loans and paid investors over $595 million in interest.
(Full disclosure: Lending Club is an advertising partner on this site; if you take out a loan or become an investor with Lending Club, Money Under 30 may be compensated — at no additional cost to you. If you choose to support our free content this way, thanks!)
How peer-to-peer lending works
Lending Club is what’s called a peer-to-peer lending network. Consumers wanting loans for any purpose—whether to consolidate debt, fund a wedding, or grow a business—create a loan application with Lending Club. Investors who want to put their money to work by lending money and collecting interest then choose to fund those borrowers’ loans.
In most cases, investors make very small (as little as $25) investments in each loan. That means that, for a given borrower, he or she is actually borrowing money from hundreds of different investors. Meanwhile, investors enjoy lower risk by spreading their money across hundreds of loans.
Lending Club makes money from origination fees on each loan and from taking a small percentage of investor profits.
With Lending Club you can:
- Borrow up to $35,000 at rates from 5.99 percent to 32.99 percent APR
- Invest in loans and earn average returns between 5 and 8 percent
Why get a loan from Lending Club?
Like most lenders, Lending Club requires borrowers to have fairly good credit. For example, the average Lending Club borrower has the following statistics:
- 699 FICO score
- 17.7 percent debt-to-income ratio (excluding mortgage)
- 16.2 years of credit history
- $73,945 personal income (top 10 percent of US population)
- Average loan size: $14,553
Borrowers with lower credit scores may be able to get a LendingClub loan but will likely pay higher interest rates (up to 32.99 percent — eek!) That’s a good example of the axiom that just because you CAN doesn’t mean you SHOULD.
What’s attractive about Lending Club for well-qualified borrowers, however, is that you can get a loan fairly quickly and use it for any purpose. Most borrowers get their funds in as little as seven days. Many banks don’t offer personal loans so easily.
Once investors fund your loan, the money is simply transferred to your bank account. You can choose a 3- or 5-year term and pay the loan off at any time with no pre-payment penalty.
Creating a loan application is free; you’ll pay an origination fee only if your loan is funded and you choose to proceed.
3- or 5- year loans for any purpose.
- Loans up to $35,000 for any purpose
- Not a bank; individual investors pool their money to make your loan
- Minimum FICO score of 620
- Average loan size: $14,553
|APR Range||Terms||Amount||Fees||Credit Accepted|
|5.99% – 32.99%||36 or 60 months||$1,000 – $35,000||$1.11% – 5.00%||Average, Good, Excellent|
Interested in investing with Lending Club?
Lending Club provides an alternative to stocks, bonds and real estate for investors who don’t mind some risk for the chance to earn yearly returns between 5 and 8 percent.
Learn more about my experience as a Lending Club investor here, or why you might want to consider a Lending Club IRA as part of your retirement savings strategy.