Today I will give Lending Club a good thorough review. I had signed up actually a few weeks ago but did not take the time to figure the thing out completely and fund a loan. After reading everyone on the web reviewing Lending Club, I thought I would give it a go and finish the process. I will be looking for more than just the financial aspect of it as I am of a technical nature and want to use a website that is designed well and easy to use.
What is Lending Club?
“Lending Club is a social lending network that lets borrower members borrow money through personal loans, and lenders fund these loans by investing in Notes. Each Note corresponds to a portion of a borrower loan.” – Lending Club FAQ
Essentially as a borrower, one would join lending club, define a loan including how much they need, what they need it for and all of their financial history and then an investor looking for a loan would be able to see it, read the information provided and decide whether or not he or she feels like the borrower is loanworthy. The lender could then fund the loan in part, or in full, and once everything finalizes and the loan is fully funded, the borrower would make regular payments back plus interest and create a profit for the investor.
The concept sparked an interest for me immediately as when I first read about it I had actually just borrowed money from a relative, at an interest rate we had decided on, a week prior for an investment opportunity which I will be writing about shortly.
What I thought
For some, the idea of lending money to complete strangers with no real collateral is a bit unnerving. Banks do it everyday and look where they are now. But the process was very transparent. As an investor, one will look through the notes currently available and assess the risk. When a borrower applies for a loan, the loan is given a grade based on the information provided, ranging from A to G, as well as sub-grades of each grade from 1 to 5, a G5 loan being the most risky. This gives an investor a way to easily sort the loans based on the grade and associated risk and pick a loan the investor is comfortable with. The investor can then fund the note with an amount of his or her choice. Basically a note is a partial ownership of the loan, in my understanding.
The sign up process is pretty simple. One must give some standard information such as name, email address, and desired screen name. Then from there, one will pick either borrow or invest. At this point the application process splits and for the investor, there are some things to read, some check boxes to check and some more information, as well as connecting a bank account (not required for the application) and creating a lender profile.
For the borrower, the process is a bit more intricate because when signing up for a borrower account, the borrower has to create a loan during the process. I did not go farther than the first screen here because I did not want to create a loan, although it is possible to have both an investor account and borrower account which require completely separate setup and email accounts.
Navigating the website under my lender account was really simple and lacked much frustration which apparently is a common goal for any financial institution’s website. I find the design very easy to use and it seemed like everywhere I click on their website there was more information there to help me understand every step of the process.
The process for actually choosing a loan or note is very smooth. The first place one will end up when trying to invest is the LendingMatch which is a tool they allow you to use to sort multiple notes by risk, showing you only the notes that meet your criteria. You can also choose to browse the notes and can sort them there by Amount, Interest Rate, etc.
From the browse page one can select check boxes next to loans they like and fund them all at once with the amount desired. I would advise anyone going through the process to read about the borrower before just running down the interest rates and checking boxes next to high yielding notes.
I think the company overall has a very professional take on the process. Their website is effectively designed and very easy to use. They do everything they can to give investors, as well as borrowers plenty of information to get comfortable with the process. The idea is solid and not only will an investor be making a profit, but he or she will essentially be helping out a fellow member of the community. Lending Club also scrapes a small fee off the top of funded notes as well as interest paid, so it is in their best interest to keep their program running.
There is risk involved. With any money changing operation, there is a risk involved. The risk in this case is given a grade so that investors can more accurately identify risk and choose what risk they are comfortable with taking on. I would strongly advise anyone that is looking into this to not go in “willy nilly”. Read the website FAQ. Think about the risk involved, how much money you may be willing to take a chance on and the possible return. Choose a note you are comfortable with and don’t just jump on the high interest notes at the hopes of landig a huge profit. The returns, even on the safest of notes offered are well over the national average interest rate so being cautious will still reap benefits. The last thing I will mention about this is diversify. Don’t invest all of your money into one note even if it is the safest looking note in the program.
For those interested in trying out Lending Club
click this link and sign up.
Try it out, you may just find that this program is a great money making vehicle, or a way for you to get back on track to financial wellness by paying off your high interest credit cards through a community funded loan.