Lending club decides whether the credit of the borrower is right on the credit report, credit score, the requested loan amount and the debt to earnings ratio of the borrower. Then credits are assigned to the borrower and given a credit grade, interest rate, and fees. The loans can be paid back with no penalty at any point. The usual loan period is three years. A five-year period is available too at higher interest and costs.
Understanding how lending clubs work
How lending club functions
Investors search the loan lists on the company website and see whether there are any loans in which they’d wish to invest in are available. You can read an in depth Lending Club review here. If anything looks attractive, the investor can decide how much they would like to invest.
Stockholders will earn cash from the interest rates on the loans. The prices run from 6.03% up to 27.48%. The lousier the creditworthiness, the higher the rate of interest will be. Lending Club promises to pay the note holder any money received from the borrower. There’s a risk to the bank that Lending Club could go bankrupt. The bank can also put a note up for sale before the maturity of the note.
Benefits to borrowers
For borrowers, the system is touted as giving access to credit at a cheaper IR. Statistics are cited utilizing the 6.78% rate of interest as a comparison to understand bank interest rates for the same loan of up to 9.06% as a state average. For the financier, a higher return on the money invested is suggested that 93% of investors earned between 6% and 18%, miles away better than CD rates of 1% and less. Lending Club protects the secrecy of the financier and promotes the transparency that exists between the company, Lending Club, and the financier.
Growth of lending club
Lending Club is the world’s largest P2P platform for lending. Since its founding in 2007, it has turned heads and received positive reviews for its efficiency and results. By employing technology to match banks (investors) and borrowers, a lower cost system is available and is passed along.
By focusing on prime borrowers, Lending Club has achieved a default rate of only 4%. Lending Club review is growing by powerful jumps. In December of 2012 the company went past $1 bill in loans. Institutional money is taking interest as one or two bigger investors have invested right into the enterprise.
This model certainly is not going away shortly and will definitely be emulated by others. It has still to be seen how widely the peer-to-peer concept will grow. Lending Club may continue to pave the way.