Prosper and Lending Club Don’t Always Verify Borrower Income and Employment

What is Lending Club?

Lending Club, formerly the largest peer-to-peer lending network, is responsible for over $60 Billion in loans as of September 2020. They moved to be a more traditional lender at the end of 2020 and their acquisition of Radius Bancorp.

More than 67% of Lending Club borrowers report using their loans to refinance existing debt or pay off their credit cards. The average interest rate for all loan terms hovers around 13 percent.

Some are lower and some higher depending on credit history, income, and so on. Some of the top states with Lending Club borrowers include California, Texas, Florida, and New York.

How Im Investing Using Lending Club

What I really want to do today is walk you through how I am investing with Lending Club. While we’ve already covered details on how to invest and borrow with Lending Club, I thought I’d show you a little bit of my personal experience with investing using the peer-to-peer lender.

I have been investing with Lending Club for a few years now. I don’t have a whole lot invested, and you’ll actually see that here in a minute because I really didn’t understand it and I wanted to test it out first. I wanted to test-drive it before 1) I put more money into it and 2) before I recommended people take a look at it.

Below, you’ll see a screenshot of the website. I went ahead and logged in so you can see where I’m at right now. Right now, I have invested a total of $2,200, so not a big investment by any means.

My net annualized return is 10.83%, so right off the cuff, you can see I’m already making more than the average investor at Lending Club is making – almost a full percentage point more. That’s not because I am a uniquely great investor. I’m actually very passive in the way I choose my notes, which I’ll show you here in a minute.

I currently have $525 sitting in cash in my Lending Club account that I need to invest, and that’s exactly what I’m going to use today to show you how to invest.

I love Lending Club because they keep things simple. For the people who don’t like to spend a lot of time doing research, they make it very, very simple in that you can choose option one, option two, or option three. Let’s just assume you have a high tolerance for risk and you are looking at the 17% figure. You look at that number. You’re drooling over it. You want it. That’s how much you want to make.

By quickly clicking that option, they will show you where you are investing your notes (the agreements you have with people you’re lending your money to). They’re ranked similarly to that of a report card or a bond.

Initially, you’ll notice by going the more aggressive direction you do not have any of the A- or B-type investors. These are your higher credit score people. They are less likely to default on their loan, so this is definitely more of a high-yield approach when it comes to peer-to-peer lending.

Of that $525 I have to invest, $100 is going into C notes, $200 is going to D notes, $150 going to E, and $75 going to F. Immediately, Lending Club breaks it down for you automatically. And I can’t tell you how much I love that! That’s actually my strategy. I don’t select the third option. I typically select option one, but immediately they break down the notes for you.

They also show you your average interest rate on that is 17.9% (in this example), but because some of those folks are going to default on their loans, they are estimating you’ll lose 4.42% based on default.

Then there is Lending Club’s charge of 0.52%, so your projected return after it’s all said and done is going to be approximately 12.25%. And that’s approximate. Maybe all of those people do pay you back where you’re all good and you actually make more, but that should just give you an idea.

Lending Club Notes

Let’s just go to the next step real quick. Here is another area where you can start seeing what some of these loans are used for. For example, you might see listed: credit cards, debt consolidation loans, small business loans, and more. You can actually see what these notes are.

Note: You should know I’m going through this process in real-time, so I can make sure to show you my thought process along the way and you get a real Lending Club review as I move from screen to screen.

The amount left is how much more that person needs to borrow to take care of the debt. If you want to take it one step further you now can see more about the individual, their gross income per month, if they’re a homeowner or not, their length of employment, their current employer, where they are located, their debt-to-income, and their credit score range. It just gives you a lot more details about the borrower.

Even more, if you want you can ask them questions if you’re not confident or just need some reassurance.

Lending Club actually gives you some direct questions to ask. They did change that a little bit over the past few years (I think because of a privacy act), but they give you a lot of the good basic questions to ask.

One thing I didn’t mention is that of the $525 I have to invest, typically only $25 of that is going toward each individual note, so that’s where the diversification comes into play where you’re not putting all your eggs in one basket.

I am going to try option one. I’m much more comfortable with that option. My projected rate of return is going to be lower, but as you can see I’m actually doing better than what was predicted. I think I might have done some high-risk investing in the beginning, but typically I have stuck with option one. You can see I have a lot more of the B borrowers and none on the F and G side. I’m not much on the high yield. I like to be a little bit more conservative with this aspect. Immediately they break it down and it looks like I’m doing some overlap of my last entry so let’s see if we can get that straightened out.

The other thing too is you could actually choose the term of the note. Lending Club initially just started out with a 36-month, three-year note. They now offer a 60-month note so that’s actually a little bit more of a return on that one, but you are locked into your own money. You can also sell these notes too, so if you are not wanting to hold it for the maturity you can find a buyer – just like selling stock on the open market.

Choosing Note Options

All right, let’s see if I can finally get this figured out. I just want to invest. I should’ve started with the option one to begin with. Let’s start over. Sorry about that.

Let’s go with option one. I can actually go in there and select notes by themselves. I can add more money to one note, take some money away from another note, etc. You have that ability! You also have the ability to build your own portfolios from scratch, so if you want to go through all of the different available notes, you can do that as well. I personally don’t have interest in that so I don’t. So, with $525 I’m going to invest into 21 different notes and my average rate of return will be approximately 9.58%. A quick look at the notes and we are going to place the order.

You can then give your portfolio a name. I haven’t done a very good job of managing this so I’m just going to assign it to “portfolio 10” and we can go from there. I will soon get a confirmation.

One notable thing is that I’ve just invested $525 into 21 individual notes. Most likely, not all of those notes will get the entire funding. In some cases you won’t get the investment you initially were after. In that case, you would get a refund. From there, you can go out and find some new notes. It most likely will happen, just so you know.

That is it as far as how to invest with Lending Club. It’s so simple! As far as who I would recommend this to – this is not a savings account replacement. This is not a certificate of deposit replacement. Even though you can get a three-year or five-year note you might think of that as a three-year or five-year CD.

How Lending Club Fits in My Overall Portfolio

How do I view Lending Club in my overall investment portfolio? Well, we already have our emergency fund and we have our savings account – this is just something to complement what I’m doing in my stocks. Like I said, I only have a small investment now, but after doing my initial Lending Club review we are planning on shifting some more money there.

We were building a house, had some other improvements we were doing, and having a third child, so we wanted to have more in cash then we probably should, but we just felt more comfortable doing that. Now that we have some of those things out of the way I am definitely a lot more comfortable moving some more cash into Lending Club and start making some more interest.

I should also say I have never had any notes default on Lending Club up to this point. I’ve been doing it for just over two years, and I believe and have not had a default yet. I’m not saying I won’t, but I haven’t had one yet. If I do I will definitely report it.

If you have any more questions let me know. You’ll find an affiliate link, so if you do click and open an account I do earn a bit of money for you doing that. You can also go to LendingClub.com directly. I won’t get the commission and that’s fine by me as well.

If you have more questions on my Lending Club review or if you have any experiences, please share. I’d love to hear more about it as this becomes more of a mainstream investing approach for a lot of people.

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Alternatives to Borrowing from Lending Club

If Lending Club denies you a loan, there are some other options you may want to consider.

But before you move on to other lenders, first review your credit report and make sure there are no negative marks that would affect your ability to get a loan. You can request your credit report information for free through annualcreditreport.com. Or you can review your credit score and report through Credit Karma.

If everything checks out ok, consider these alternatives to borrowing from Lending Club. Or check out Fiona, which will allow you to compare interest rates from their trusted lending partners in under a minute.

Upstart

Founded by ex-Googlers, Upstart prides itself on offering fair and fast personal loans. Loan rates range from 7.74% to 35.99%. According to the site, borrowers save an estimated 23% compared to their credit card rates.

The company originated $2.9 billion in loans in 2017. You can borrow from $1,000 to $50,000. Get an estimate on your rate by filling out a quick questionnaire. This won’t affect your credit score.

To apply for a loan, you must be a U.S. citizen or permanent resident currently living in the U.S. There’s an exception for active-duty personnel. Residents in all states except Iowa and West Virginia can apply for a loan.

Prosper

Another alternative to borrowing from Lending Club is Prosper. One of the first peer-to-peer lending platforms, Prosper has grown to $14 billion borrowed since 2005.

Loans have fixed three or five-year terms and a single monthly payment with no prepayment penalties. Fixed-rate loans range between $2,000 and $40,000.

The application process is relatively quick, and you can choose the offer with the terms that work best for you. Once you’re approved, the money goes directly to your account via direct deposit.

How to apply for a loan with LendingClub

Because LendingClub is a peer-to-peer lender, the application and funding process differs from other lenders.

To apply for a loan, click “Check Your Rate” on LendingClub’s personal loans page. The lender won’t check your credit at this point but will ask for some information to see if you qualify:

  • The purpose of the loan.
  • Loan amount.
  • Whether you’re applying with someone else.
  • Information about your co-borrower, if you have one.
  • Your birthdate.
  • Total annual income.
  • Name, home address and email address.

Based on these details, LendingClub will provide a breakdown of the amount you can borrow and the APR, monthly payment, origination fee and loan term. Compare this offer to other lenders. You may be able to avoid the origination fee or get a much lower interest rate elsewhere.

If you decide to continue with the LendingClub offer, you’ll need to provide a few more details for an official application:

  • Whether you rent or own your home.
  • Phone number.
  • Employment situation.
  • Employer name and address.
  • Social Security number.

LendingClub will then perform a soft credit check, which won’t impact your credit. A pool of investors will review your loan and decide whether they want to fund it. Before finalizing your loan, LendingClub, like all lenders, will do a hard credit check, which can adversely impact your credit score.

You typically will receive the funds within two days of approval. Once your loan is approved by investors, LendingClub will deposit the funds into your account, and interest will start accruing.

If you’ve had a change of heart, you can back out of your loan within five days of accepting the loan funds. You’ll need to contact the lender as soon as possible to cancel the loan application or disbursement. LendingClub will withdraw the funds from your account, although it won’t be able to recover money that’s already been paid to another source. You’ll be on the hook for repaying that portion of the loan. If you’ve missed the five-day window to return the loan, call the lender. Ask whether you can simply log in to your account and use the loan funds to pay off the loan balance.

But if you keep the loan and make consistent payments, you may be able to borrow again from LendingClub down the road. Eligible borrowers can have up to two loans outstanding from the lender for up to $50,000 total.

Customers can call LendingClub customer service at 888-596-3157. Representatives are available Monday through Friday from 5 a.m. to 5 p.m. PT and Saturday from 8 a.m. to 5 p.m. PT.

LendingClub features

Here’s a breakdown of some of the benefits and drawbacks of LendingClub personal loans.

Pros

  • Accessible to most borrowers
  • Offers joint applications
  • Fast funding after approval

LendingClub is a peer-to-peer company that acts as a broker to match investors with would-be borrowers. You can take out personal and business loans and take advantage of auto and medical financing. Instead of a bank or financial institution, investors act as lenders to fund your loan.

LendingClub’s unsecured personal loans range from $1,000 to $40,000 with decent annual percentage rates (APRs), but not the lowest available. LendingClub charges origination fees and requires fair to excellent credit to qualify. If you have bad credit and are approved for a loan with a high interest rate along with a steep origination fee, you may be better off with a different lender.

Pros

Long Loan Terms: You can stretch the loan to repayment terms of three years and five years.

Soft Pull: No hard credit inquiry is needed to check rates, which comes in handy when comparing loan products. It will allow you to conveniently shop around without hurting your credit score.

Low Credit Score: The LendingClub credit score has a minimum acceptance of 600. Of course, the interest rate might not be ideal with that score, but it might be a good deal for borrowers with so-so credit who usually have to settle for subprime offers.

Is Lending Club Right For You?

Are you an investor looking to earn more than the going rate?

Are you a borrower wanting to pay less than what the banks are charging?

Lending Club had been transforming the banking system because of their peer-to-peer lending model that made those exact promises. And after I got my first taste of P2P investing, I realized I had to do a Lending Club review. It was a service suitable for those looking to invest as little as $1,000 or as much as $20,000. And they offered a multitude of loan products, from personal to medical to business — many collateral-free.

That said, there are some downsides, or at least things to be aware of.

I’ll cover the in and outs of peer-to-peer lending through Lending Club from 3 different perspectives:

  • The investor
  • The borrower
  • My personal experience

What are LendingClub’s Requirements for Borrowers?

LendingClub loan amounts generally range from $1,000 to $40,000. A minimum credit score of 600 is required, along with a minimum credit history of three years. The debt-to-income ratio must be less than 40% for single applications and 35% for joint applicants.

You can apply for a loan on the organization’s web site —www.LendingClub.com.

The application process will ask for:
  • Loan amount
  • Reason for borrowing
  • Your personal information (address, telephone number, e-mail)
  • Personal information of co-applicants
  • Verifiable individual/joint income

LendingClub will conduct a “soft’’ credit check, which won’t affect your credit rating. Upon approval, you can view an online calculator with individual options, including the fixed monthly payment for a 36-month loan and a 60-month loan with the interest rates for each option.

LendingClub Personal Loan Details

Loan Amounts & Terms

  • Loan amounts. LendingClub offers unsecured personal loans from $1,000 to $40,000, with the average loan being $15,800. Unlike some lenders, LendingClub loan minimums do not vary by state.
  • Loan terms. LendingClub borrowers can choose from loan terms of 36 or 60 months—or three or five years. The average term for a LendingClub personal loan is 36 months. This is in contrast to many competitors that offer a wide range of loan terms, often up to seven years or more.

Loan Costs

  • APR. LendingClub personal loans feature APRs between 6.34% to 35.89%, but the average APR offered to borrowers is 15.95%. The rate an applicant qualifies for is based on a number of factors, including credit history rating, desired loan amount and debt-to-income (DTI) ratio. The lender does not offer any rate discounts for borrowers who sign up to make automatic payments.
  • Origination fees. LendingClub charges a one-time origination fee between 3% and 6% of the total loan amount. The origination fee is based on the borrower’s credit rating and is subtracted from the loan amount at funding. On average, borrowers are charged a 5% origination fee.
  • Late fees. Borrowers who make late payments are charged a fee of 5% of the late payment amount or $15, whichever is greater. Notably, however, LendingClub does provide borrowers a 15-day grace period for late payments.
  • Prepayment penalties. LendingClub does not charge borrowers any prepayment penalties for paying off loans prior to the end of their loan term. This means you can pay off your loan early without incurring additional costs.

Note: According to the Better Business Bureau (BBB), LendingClub’s name and logo have been fraudulently used as part of loan scams, including the collection of security, insurance or other fees. LendingClub does not charge any upfront application fees in exchange for receiving a loan.

As such, any company claiming to be LendingClub and charging such fees should be reported as a scam. These fraudulent advanced fees are different from LendingClub’s standard origination fees, which are subtracted from loan funds at disbursement.

Perks & Features

  • Payment date flexibility. Borrowers with a current account in good standing can change their payment due date temporarily or permanently. To make a permanent change, LendingClub borrowers can sign into their online account and navigate to the Payment Due Date section; the update can also be made via telephone. Temporary payment date changes must be made via phone or email at least three days before the current due date.
  • Online account management. Currently, LendingClub’s mobile app is only available for banking products. However, LendingClub’s website is optimized for mobile use, making it easy for customers to track their application status, loan details and autopay information.
  • Additional services. In addition to personal loans, LendingClub offers auto refinancing and patient financing. What’s more, LendingClub is now considered a digital marketplace bank due to its recent acquisition of Radius Bank.

Who Should Get a LendingClub Loan

LendingClub offers unsecured loans with a minimum credit requirement of 600, making it a good option for those who don’t have good or excellent credit but also want to avoid secured loans. But temper your expectations; a lower credit score likely means qualifying for a lower loan amount and a higher interest rate. The ability to check your rate without a hard credit inquiry makes it easy to shop around for the best rate and lets you check out LendingClub’s options without risk. 

LendingClub makes it easy to use its loans for a variety of purposes, from covering an emergency expense to completing home improvement projects. And if you’re planning to use your personal loan to consolidate debt, the company can save you a step by transferring some or all of your loan money directly to your creditor.

How to Apply for a LendingClub Personal Loan

Applying for a personal loan typically involves prequalifying for a rate, submitting a formal application and awaiting loan approval. Follow these steps to apply for a LendingClub personal loan:

  1. Check your rate. Like many online lenders, LendingClub lets prospective borrowers check available APRs before formally applying. To start the process, applicants provide their name, income, home address and contact information. This can be completed online and only involves a soft credit inquiry, so it won’t impact the applicant’s credit score.
  2. Choose an offer. The online tool then provides multiple loan offers with various loan amounts, interest rates, APRs, monthly payments and loan terms that can be adjusted by the customer. A prospective borrower can then choose the loan structure that fits her borrowing needs and budget.
  3. Confirm personal information. After choosing a loan offer, borrowers must provide their Social Security number (SSN) as well as income and employment information. Once verified, the applicant can agree to the lending disclosures and add relevant banking information. If any other information or documentation is necessary, LendingClub updates the applicant’s online dashboard.
  4. Await confirmation and funds. Once a borrower’s application is complete and information verified, LendingClub looks for investors on its marketplace to finalize a funding match. LendingClub conducts a hard credit inquiry, and loan funds are sent directly to the borrower’s bank account within about five business days. Alternatively, funds may be sent directly to third-party creditors for debt consolidation purposes.
  5. Start making payments. The best way to make payments on a LendingClub loan is via autopay. However, payments also can be made by check, phone or wire transfer. An approved borrower’s first loan payment is due one month after the loan funds are issued.

Time to Receive Funds

It typically takes up to five business days for LendingClub borrowers to receive their loan funds. To expedite funding, LendingClub advises applicants to regularly review their application status and confirm all of the necessary documents are submitted.

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