Should you use Lending Club for your personal loan?

A personal loan can help you a great deal when in a dire need. Lending club is a fast growing
initiative that helps eligible people get personal loans easily at relatively lower interest rates
compared to the traditional banks. If you’re thinking about making a loan, lending club could be
an option worth considering. However, first things first; you need to understand the metrics and
how it works.
Lending clubs started back in 2007 as a simple application on Facebook before the initiative
moved to an independent website that became its home. The site has become popular over the
years because of the numerous lending options it offers people with different financial needs and
credit scores. The credit worthiness of a borrower is determined based on their credit scores and
other metrics.
Today, Lending club is the largest online credit platform in the world. The site facilitates viable
users with personal loans and funding for medical procedures. The most enticing property of this
initiative is that the borrowers get low interest rates and the loan is processed fast on a userfriendly
platform at the click of a few buttons which is a very impressive attribute. Lending Club
also gives an opportunity to investors who are willing to put their money into the business in
exchange for interest.
Interestingly, Lending club has no physical premise or branch infrastructure; it operates fully
online unlike the case with the conventional banks which have branches in many towns and very
little online presence. The club optimizes the use of technology in order to keep operations fees
at their minimum, a strategy which translates to lower interest rates for borrowers and attractive
rates for investors. It is a peer lending platform that is progressively transforming the banking
industry into a very efficient internet-based marketplace to help people from all over the world
achieve their financial needs with ease.
Traditional banks
Banks have run the lending business, rightfully, for a very long time. Whenever the need to
borrow money comes up, many people would think about the traditional banks first as a possible
lender before considering other options. However, these banks will often ask for many
requirements before a request for a loan is approved, a fact that may not go down well with
many borrowers especially if they need the money urgently. Traditional banks give two main
types of personal loans: secured loans and unsecured loans.
In the case of a secured loan, you’ll have to provide a valid collateral while in the case of an
unsecured loan the money will be lent without a collateral. The secured loans attract much lower
interest rates, lower fees, and are processed fast at fair repayment conditions. Unsecured loans
attract relatively high interest rates with stringent requirements. The type of personal loan you
qualify for squarely depends on your bank and your financial records.
How Lending Club works
Lending Club basically makes good of technology to run the credit marketplace at costs much
lower than the traditional banks’ personal loan programs while at the same time ensuring better
returns for the investors. If a 2015 survey by the Lending club is to go by, borrowers who secured
personal loans from them enjoyed an average of 24% lower interest loans as compared to those
who borrowed from the conventional banks. This reality has made peer-peer borrowing
prominent and more people are resorting to sites like Lendingclub.com instead of the traditional
banks.
Lendingclub.Com vs. Traditional Banks One-On-One
The financial engineering involved and independence of the lender
When we talk of traditional banks, there’s an elephant in the room that’s hardly mentioned; wall
street. Traditional banks are not as independent as the lending club because their actions are
closely monitored and regulated by Wall Street. Lending club on the other hand is independent.
It gets its capital from the investors/shareholders instead of Wall-Street-run financiers. The
investors get the returns on their revenues much fast and borrowers get their money processed
equally fast because the procedures are pretty clear and the whole process is transparent. The
traditional banks would take longer because of there’s a whole lot of dynamics and requirements
in the process of securing a personal loan. Lendingclub.com is therefore a more independent and
better regulated lender compared to the traditional banks.
Borrower requirement
Both the traditional Banks and lendingclub.com expect some basic requirements to be met
before a borrower is deemed eligible for the loan. For instance, lendingclub.com requires the
borrower have a gross yearly income not less than $70,000, a credit card score not less than 660
and a net worth not less than $70,000. The borrower’s home and cars are not counted as part of
his/her net worth. Lendingclub.com also bars borrowers from making loans more than a-tenth of
their net worth. Banks on the other hand will require much more paper work to prove your credit
worthiness.
Safety
To prevent fraud, lendingclub.com works with a number consumer reporting agencies in various
countries, identity databases and anti-fraud initiatives to verify the identity of the borrowers
before their loans are approved. The borrowers must verify their social security IDs, national IDs,
and names among other details before they apply for a loan. The traditional banks give very little
room for fraud because you may have to avail yourself physically before they can approve your
personal loan, when you do so, you must have the original copy of your ID documents.
Bottom Line
Lendingclub.com is a leading peer-to-peer platform that has helped millions of people to make
personal loans. It does so by providing an opportunity for borrowers to meet lenders. However,
it is good to know that this investment is not FDIC insured, traditional banks are. This means that
in case a borrower defaults and the loan collection is effected by the company, the company will
first take a 30-35% share of the loan in collection fees then hand over the difference to the lender.
This could be its most unpopular disadvantage because the lender will get less money out of the
deal than he invested. Unlike the case with most traditional banks, lendingclub.com loans are
unsecured.
If the information used to gauge the credit worthiness of the borrower is not updated, it could
work for or against either the borrower or the lender. The data on databases and reporting
agencies may also not be accurate. Traditional banks are stricter are keen on borrowers’ details
leaving a very small room for fraud. However, in case of identity theft, lendingclub.com give a
limited identity theft fraud reimbursement to the investor.
Generally, lendingclub.com is a better option because it processes personal loans faster than the
traditional banks and gives much lower interest rates on the loans.
Other renowned peer to peer lending site are:
Prosper.com which allows borrowers to make loans on an FICO score of 640. Their loans can be
repaid in up to three years at no prepayment fee and the borrowers can make two loans.
Zopa.com: This is a social lending website run by a number of credit unions. The rates can be low
or high depending on whether or not the borrower agrees to participate in the credit union.
Kiva.org: This a peer to peer lending site that processes loans for very low income people,
specifically from developing countries.
I hope you found this post insightful. Please feel free to comment or contact us for more
information on peer to peer lending sites

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