Our Verdict

LendingClub.com appears to be very beneficial to investors — reportedly offering investors average returns between 9 and 12 %. Other investments simply will not yield this type of return in today’s economy.

For borrowers who cannot obtain a loan or credit card by conventional means, LendingClub may provide a way to get money to start a business, consolidate debts, pay for a vacation or wedding, or anything else people might need cash for. In fact, LendingClub states that its borrower are able to get leans with interest rates that are, on average, 7 percentage points lower that what was otherwise available to them – and this resulted in lowering their rates by 32% (again, on average).

The competition to have investors select your loan for funding is steep, but it’s a different process than what you’d face with banks or credit card companies, leveling the playing field if you have a good credit score and a good story to tell. (A large social network with deep pockets can’t hurt with online peer-to-peer lending, either.)

While it may not be the best way to borrow money, it offers an excellent ROI with little risk (if you diversify) for investors. And provides an alternative source of funds for borrowers looking to avoid payday loans and scams.

LendingClub Overview

LendingClub one of the largest and best known peer-to-peer lenders.

Peer-to-peer lending, as its name implies, allows individual investors to pool together and make loans to ordinary people like you and me.

For the lenders (the investors) this is one way to invest any amount of money, beginning at $25, and earn an average of about 10% return. This is a good return in any economy. With interest rates down, it is especially appealing right now.​

​Most states allow anyone to invest and trade in loans on LendingClub. Currently, only Ohio, Maryland, Oregon, and Kansas prohibit all lending activities. Kentucky requires that you be an accredited investor (meaning a high net-worth investor in most cases). And states like Alabama, South Caroline, North Carolina, Tennessee, New Jersey, Pennsylvania, New Mexico, Michigan, Illinois, Missouri, North Dakota and Nebraska will only let you trade in the notes.

Applying for a loan is easier. The only states where loans are not issued are to residents of Iowa​, Idaho and West Virginia.

How it Works for Borrowers

We previously looked at peer-to-peer lending as a way to get out of debt. After all, it does offer the prospect of finding loans with lower interest rates than credit card debt and a lot less hassle than a bank loan.

Sure, some some potential borrowers with good-to-excellent credit can simply hang tight and wait for a 0% interest balance transfer offer from a credit card in order to consolidate debt and pay it off faster.

But many of you will need to borrow more than you might be approved for with a credit card. And some people will lack the discipline to pay down the principal on the transferred debt. Plus, as we get closer to seeing interest rate hikes, the days of 0% APR balance transfer offers may not be available.

So, we decided to take a fresh look at peer-to-peer ​loans from LendingClub as part of this in depth review.

Getting Started

To get started, you fill out an online application. This is where you provide some details, and LendingClub lets you know what your interest rate and monthly payments would be.  You also request your loan amount, up to $40,000.

LendingClub is able to make a decision on pre-approval within minutes of you submitting your application.

At this point, you make the decision to go ahead with the loan process or not. The best part is that you can check your interest rate and payment terms without hurting your credit score.

Getting Funded

If you’re moving forward, you’ll need to provide your bank account number so that payments can be deducted directly from your checking account each month. Your loan will be listed on the site, along with your credit grade (a grade from A to G), the reason for your loan, and a short sentence about why you need the money. (If you decide not to, you’ll receive some follow-up emails from LendingClub.com, which you can ignore or opt out of receiving.)

Depending on your credit grade, interest rates can vary from 5.99% to 35.96% (as of March 8, 2016)​. And you should note that your interest charge will include an origination fee – which is included in publicized APRs.

You can find current rates for LendingClub and other lenders on this page

Your loan will be listed for 14 days, at which time people can choose to invest. If you receive 60% or more of the funding from private investors, LendingClub.com moves forward with your loan request.

Note: Loans are issued by WebBank, an FDIC insured Utah chartered industrial bank located in Salt Lake City, Utah.

See also

Personal Loans

Review of SoFi Personal Loan for Purchases or Credit Card Refinancing

Once you receive your loan, it will work like any other installment loan. Each payment will consist of principal and interest, and the loan will amortize over its term.

Of course, LendingClub loans can be prepaid at anytime, without incurring any fees or penalties.​

Bottom Line for Borrowers

If you are considering a peer-to-peer loan to help pay off up to $35,000 in high interest debt, or just looking for a personal loan, here are the pros and cons of LendingClub:

How it Works for Investors

Investors review the LendingClub marketplace to find loans to fund.

Our understanding is that diversification is the key to a solid return on LendingClub. You can invest as little as $25 in any “note” (any loan.) If you have $5,000 to invest, you can invest in up to 200 different loans, which is the wisest course of action. If you have only $50, split it between two notes.

Highly diversified accounts can provide low risk and high returns for investors. And, as you can see, it is fairly easy to create a diversified portfolio quickly.

You can choose to re-invest your earnings, or cash out with an electronic transfer, wire transfer or have the funds deposited into Paypal.​

If you want to learn more about investing with LendingClub, check out this detailed article we prepared.