Lending Club Review

икона за подарък Headquartered in San Francisco, California, Lending Club is a peer to peer lender with a focus on high-credit-worthy borrowers, thus reducing the default risk that plagues so many other lending institutions. They publishes their performance statistics on a daily basis, indicating that over 90% of loan applications they review, are declined. They also grade, categorize and from their assessments, determine which applications qualify, and the amount of funding provided to the borrower by the investors. It is not Club money that is being lend, rather the investors.

They are not a low- rate interest lender, as they currently are averaging 11.37%, with a very low default rate of 3%, in this most difficult economy, which indicates just how well they select whom to finance. Their financing works on the basis that the borrowers seeking financing creates an informative review of themselves, purpose and amount they wish to borrow. Lending Club obtains a credit report on the borrower which is used to score the application, assign a credit grade and applicable interest rate. For example, a lower credit score would result in a higher interest rate as they are deemed to be a higher risk. Credit history, loan amount requested and the potential borrower’s debt to income ratio (the ability to service the loan with available income), credit grades are than divided into subcategories with varying interest rates assigned to these categories. The borrower is required to pay a fee known as an “origination” fee on loans which varies on the grade that was determined by Lending Club in the application process. This fee increases with the higher risk rating assigned. Borrowers may repay the loan in part or in full without penalty. This type of financing is only available to residents in 42 States.

The Lenders or Investors, review the applications and select the borrowers whom they will invest in via loans. There is a minimum investment of $25.00 per note. These lenders only invest based on Lending Club’s assessment and interest rates which were determined earlier with the grading of the applicants. A service fee of 1% is charged on all amounts the borrower pays. A licensed is required to operate in the 42 States and lenders must uses these addresses in the specific state where the borrowing will take place. The Club pays the note holder (lender) the monies received from the borrower less the service fee. These note holders are also “unsecured creditors”. The risk is that they could lose part or all of their investments, even if the borrower continued to repay their debts, if this Club became insolvent and declared bankruptcy.

Lending Club in 2008, upon completion of SEC registration process, filed prospectus and resumed a new lender registration, with notes issued after Oct 14/08 representing the Club’s securities rather than direct obligations of the ultimate borrowers. These notes are now traded which means they can be bought and sold on the Foliofn. Prospective sellers set a price for the notes they wish to sell, interested buyers can purchase. Any US resident can purchase these notes with no stipulation as to what state they reside in. There is also a 5 year note introduced in 2010, beside the 3 yr note previously available. As there are varying conditions with these notes, buyers of notes are recommended to review carefully.

This lending program was originally based on the premise that borrowers would be reluctant to default on loans with whom they associated with in social and business circles. Using algorithms such as location, education, professional background and even social network, the idea was to partner those that would invest (lender) with those that required funds (borrower) and that the Club would makes it’s money from accessing the applicants, charging fees to both parties in monitoring and collection of payments. Today, it no longer follows this earlier criteria, but continues to seek qualified borrowers and investors. The benefits to the lender/investor is receiving a higher return on investment with fairly nominal risk of loss of funds. The borrower received the loan, while paying a higher rate of interest, is not require to pledge security other than a promise to repay the debt, and Lending Club whom affiliated the process, receives revenue through the fees charged.

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