When you have debt, there are two things that have a big impact on your repayment plan: your interest rate and your monthly payment. One common way that people change up their interest rates and/or monthly payments is by consolidating their debt. And one of the most common companies for doing that (which we’ve written about before) is called Lending Club. Since we’ve mentioned them before, today we wanted to write an actual review of Lending Club so you can get an idea of how they work and whether (and when) a Lending Club consolidation loan is a good idea.
It can be pretty confusing to try to figure out the difference between debt consolidation companies, debt settlement companies, and debt management companies, let alone sift through hundreds of debt consolidation companies to find one that is trustworthy.
So let’s take a closer look at Lending Club and how it works.
What is Peer-to-Peer Lending?
Lending Club is based on something called Peer-to-Peer (P2P) lending. We now have P2P car rentals, P2P home rentals… and P2P loans. A P2P loan is made between two consumers. One consumer needs a loan, and the other consumer wants to lend their money to earn interest. While these loans are generally cheaper (i.e. have a lower interest rate) than what a person can get from a traditional banking institution, they pay more interest than other interest-yielding accounts will, which is why this can make a good deal for both parties involved.
What is Lending Club?
Lending Club is a P2P lending platform where borrowers can apply for loans, and investors can fund these loans. Lending Club has been around since 2007, and is registered with the Securities Exchange Commission (SEC). With over $22 billion in loans since then, it is one of the largest P2P leaders now.
Personal loans can be taken out for up to $40,000 (though this also depends on what your credit risk looks like). The interest rate you are given also depends on your credit risk, the market at the time, and Lending Club’s base rate. You can expect an APR of between 5.99% to 35.89%, and a loan origination fee of between 1% and 6%.
What’s the Loan Process Like with Lending Club?
All potential borrowers need to apply for a loan. Before you do so, make sure you meet the basic criteria, such as that you are over 18 years of age, your debt-to-income ratio is below 25% (excludes mortgage), you have a bank and social security number, a FICO credit score of at least 660, and you don’t have major issues on your credit report (which goes hand-in-hand with the credit score).
Assuming you’ve made it past those hurdles, here are the loan process steps:
- Get a rate quote: Not sure if you want to go through the whole process? You can start off by just getting a rate quote to see what your interest rate will look like.
- Choose an offer: If you’ve been given offers with loan terms and interest rates (this means your loan application was approved), then you can accept the one you want.
- Check-in on funding progress: Your loan will be listed for free for two weeks. You may only get partially funded during this time, in which case you will need to resubmit your loan request. Check in every so often to see people funding your loan. If you get fully funded, then you’re good to go!
- Money sent to your bank account: The loan money will be sent to your bank account. Send this money to your creditors to pay off your balances! Do not hesitate… pay off the debt immediately to avoid having two balances.
- Make consistent monthly payments: Lending Club will automatically deduct your monthly payment from your bank account, and repayment starts one month after your loan has been funded.
A Few Pros and Cons of Getting a Loan through Lending Club
I’ll start off with a few pros:
- You’ll enjoy a reliable, fixed interest rate: You are getting a fixed interest rate, so if you use this platform to consolidate high interest rate credit cards, you’re taking the danger of an interest rate hike out of the equation.
- Free interest rate quote: You can get a free interest rate quote without it impacting your credit score.
- Impressive interest savings: Lending Club states that they save borrowers 33% in interest. That is huge, and can really catapult your debt payoff plan forward.
- You can borrow and invest at the same time: I’m not sure if you want to do this, but if you do, the option is there.
A few cons to consider:
- Your credit score will temporarily decrease with your application: Each application (not rate quote) you submit will equal a hard pull that will be reflected on your credit bureau reports and credit score. This could potentially hurt your credit score in the short term (see this article for more information).
- Credit bureau reporting: This is only a con if you default, but you should know that your payments are reported to the credit bureaus. Using Lending Club is not a way to get around this.
- You may not be able to use them: There are a few states whose residents are not eligible for loans from Lending Club. Those states are: West Virginia & Idaho
The bottom line is that Lending Club is a reputable company and in some cases borrowing a debt consolidation loan through Lending Club can help you pay off your debt faster – especially if you can get a lower interest rate. Just be sure to do your research and make sure it’s a good fit for you before signing on the dotted line.
Let us know in the comments below if you’ve used Lending Club or if you have any questions about them.
Image Credit: Daniel Go