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Borrowing from Lending Club

Dec. 7, 2010
Credit Cards
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This is a guest post from Investor Junkie, who invests in Lending Club loans, and wrote a Lending Club review as an investor.

Here’s a typical situation that’s happened in the past 2 years.  Your credit card rate was just raised to 21.99% APR.  Zero percent credit card transfers have gone the way of the do-do bird.  Taking out equity from your home isn’t really an option.  What other options are available?  Lending Club is a viable alternative to traditional bank loans, and typically offers lower rates.  Lending Club is known as peer to peer lending company.  What that means in plain English is when you apply for a loan other people invest their own money to fund your note.  The other benefit is no big “evil” banks are involved.  While Lending Club may assist in some of the loan financing to complete the loan, typically other Lending Club members do most.

They only allow prime borrowers, and to qualify you must:

  • Be a US citizen or permanent resident.
  • Be at least 18 years old.
  • Have a valid bank account.
  • Have a valid social security number.
  • Have a FICO score of at least 660 with a debt-to-income ratio (excluding mortgage) below 25%.
  • At least 3 years of credit history, showing no current delinquencies, recent bankruptcies (7 years), open tax liens, charge-offs or non-medical collections account in the past 12 months.
  • Have no more than 10 inquiries on your credit report in the last 6 months.
  • Have a revolving credit utilization of less than 100%.
  • Have more than 3 accounts in your credit report, of which more than 2 are currently open.

    Currently Lending Club is not accepting loan applications from the following 8 States: Iowa, Idaho, Indiana, Maine, Mississippi, North Dakota, Nebraska, and Tennessee.

    Lending Club loans are available up to $25,000, and are available for either 3 or 5 year terms.  Each loan request made by a borrower is scored on a grade ranging from A1 to G5.  This grade corresponds to a related fixed interest rate.  At the time of writing their best rate is 6.78% for a 36 month loan and he highest grade is 24.95% for a 36 month note.  Similar to credit cards, their loans are unsecured lines of credit, and not tied to an asset.  Though you can take a loan out and purchase a car, make improvements to your house, pay off debts at a lower rate, or even help fund a new business.  Loans can be prepaid at anytime without penalty.  Your loan APR is determined by your:

    • Credit history
    • FICO score
    • Loan purpose
    • Debt to income ratio

    The application process is quick and painless.  When applying, all of your personal information is protected from investors.  Once approved by Lending Club, a loan typically takes a few weeks to get completely funded by investors.  Lending Club investors have the chance to ask the borrower questions about the purpose of the loan.  They may also ask other financial questions to determine your credit risk, and ability to repay. Once your loan is fully funded, Lending Club assesses an origination fee.  This origination fee is determined by the loan grade.  The money is then deposited into your checking account, and payments can be automatically withdrawn from the same checking account.

    Even as the average credit card APR is rising, you do have other options.  Lending Club is great option for prime borrowers, and at better rates than most banks.