Lending Club Review
Hi I’m Adam Jusko from ProudMoney.com and today i am going to provide an overview/ review of Lending Club — talk about who they are what they do, why you might want to use them, and help you decide if that’s a good idea or not. Lending Club is a peer-to-peer lending website. Peer-to-peer basically means that you can go to the site and you can borrow money and the people you’re borrowing from are other people that are on the site who choose to put money in. Now you do have a bank that’s in the middle of things here, WebBank is a partner of Lending Club. That’s essentially how it works: one side is lending money and the other side is borrowing money, and as it gets paid back the side that is lending is getting, hopefully, paid in the interest from the loans that are put out there. So there are two sides, there’s the borrower side and there is the investor/lender side. We’ll talk about the borrower side first. There are personal loans and other types of loans that you can get from Lending Club, most of them are in the 1000 to 4000 dollar range, but it’s possible that you can go all the way up to $40,000 according to the the Lending Club site. Fees and interest are going to depend on your credit history, so the better your credit history the better terms you’re going to get. Which makes sense — that’s pretty much how loans work no matter where you go. So there is an origination fee with Lending Club that is between 1% and 6% for borrowers. Again, the better your credit history the less that interest or that fee is going to be. And then of course your interest rate same deal — it’s going to be lower if you have better credit and it’s going to be higher if you have worse credit. So the origination fee, the way you need to think about this is, if you have between 1% and 6% that’s going to come out of the money that you are loaned. So let’s say you decide that you want a loan for $2,000 and you end up getting a 5% origination fee. When you get that $2,000 you’re actually not going to get $2,000, you’re going to end up getting $1,900 because you’re going to get $100 or 5% of that $2,000 taken out before the money ever gets to you. So that’s kind of how that works and you need to factor that in. I’m not going to talk about specific interest rates that you’re going to get but generally many people are finding at Lending Club that they’re doing better than they would if they, you know, bought something with a credit card and try to pay it over time and maybe better than other personal loans that they might get straight through a bank. But that’s not guaranteed, so make sure you check around and don’t just assume that Lending Club is the best place for you to go. Always do your due diligence and make sure that you’re checking out what’s out there. One other thing you should also remember: if you do take a loan it will affect your credit history. So this is not just sort of, because it’s peer-to-peer this is, you know, no one’s going to kind of know how it works out. How you pay back that loan and if you make those payments on time, this is going to affect your credit just like it would if you didn’t pay off your credit card or did pay off your credit card or any other loan that you have. So let’s talk about the investors now. If you want to invest and hope to make some money by putting your own money to work, you can go to Lending Club and set up an account to be an investor. And just like any other investment that you might do online, you put money into an account and you’ll have an administrative area where you can see how much money you have and what types of loans there is the potential for you to put your money toward. What you’re going to have is you’re going to have sort of a list of potential borrowers and they are going to be graded on a letter grade that is going to be a quick way for you to see what their credit history is and you know what the potential is for them probably to either pay off their loan or perhaps default on their loan, The better their credit history, the better their grade, the better the chance that they’re going to completely follow through on their loan and you know you’re not going to have a default. The worse their credit history is obviously the more chance there is they’re going to default. But the amount of interest that you’re going to get is also based on that — so the greater the risk the greater the potential interest rate that you get back. The lower the risk the lower the rate. So you need to factor that in just like any bank factors in who they lend money to. One thing you have to think about here is that you will only be funding part of every loan. There are going to be other other people on the site who are going to fund pieces of the loan as well. And what you want to do actually is… that’s a good thing for you because you want to diversify the money that you’re putting in. You would rather have more loans with less of your money into each loan than really be chunking big pieces into a smaller number of loans. That diversity and diversification of your money is going to help you get hopefully a decent return without there being too much downside risk. So if you look on the Lending Club site you can actually see some statistics of how people have done in the past. And there are no guarantees on how you’re going to do, just like any other investment, but it appears that for the most part what people are seeing are anywhere from a four percent to a six percent return on their investments through the site. So that’s something for you to take into consideration. Maybe you can do better than that but you also have to realize that even if the interest rates look really nice when you’re on the site in terms of what your borrowers are paying there are going to be a certain number of defaults and that is going to eat into how much money you actually make. And the fees that Lending Club takes within that transaction between the borrowers and the lenders also are going to come out of each side of that equation. You’re putting money in but Lending Club is going to take part of that money when they actually give the loans to the borrower’s on the site. So that’s basically how it works. Our advice would be that if you are going to be a lender, you start slow. You put in a little bit of money, see how it goes, see how you’re feeling about things, and then add more money over time. Don’t jump in with too much money here because it sounds like you could get better a better return than maybe you’re getting elsewhere. It’s good to start slow, see how it goes, go from there. So that is it. Thanks for watching. Please go to ProudMoney.com for other financial stats and news and again thanks for watching. Bye.