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Peer-to-peer lending companies, including Lending Club and Prosper, have gotten a lot of press during the recession as banks cut back in lending. We thought it would only make sense to provide an in-depth review of Lending Club, so here’s our Lending Club Review:

Investors have made money for years by buying bonds and bond funds to companies and municipalities so that that the company or city can invest in a capital improvement project and pay the investor back over time with an agreed upon interest rate. However, very few investors are making personal loans to individuals unless they have a pre-existing family relationship or friendship. The vast majority of personal loans in the United States are coming from banks and not from individual investors.

One of the primary reasons that there aren’t more individual investors originating personal loans as an investment is because there’s a lot of hassle involved. That’s where Lending Club comes in. Lending Club is a person-to-person marketplace that connects investors and borrowers so that individual investors can originate loans to borrowers and hopefully make a reasonably good rate of return. The loans that are sold are regulated by the SEC and Lending Club makes its money by taking a small fraction of the interest rate that is earned on each loan.

Investing at Lending Club

Many investors who have decided to do a Lending Club review have been earning between 9% and 12% on their money by fulfilling loans through Lending Club. It provides an excellent way to diversify one’s investment in something other than stocks, bonds, real estate and precious metals. Before you begin investing, make sure that you take time to learn how peer to peer lending works. Start your loan portfolio small and be prepared for some trial and error before doing any major investing. You should also know that Lending Club’s default rates are under 3% but like any investment, there are some risks involved.

Here’s how to get started investing:

  1. Open an account online—it’s easy and it’s free. (Open an account from this link, and you’ll receive a $25.00 deposit bonus for signing up through our Lending Club Review)
  2. Deposit funds (via ACH, wire, check or PayPal).
  3. Easily build a portfolio of loans based on your criteria.
  4. Receive monthly payments of principle and interest. There are no maintenance fees.

Borrowing from Lending Club

If you would like to borrow money from Lending Club, you’ll need a credit score of at least 660. There are several factors that will affect the interest rate that you receive, including your debt to income ratio, the amount of delinquencies you have on your credit report (if any) and the number of inquiries for new credit on your report.  As a borrower, you can take out a 3 year loan anywhere from $1,000 to $25,000. The interest rate you will receive will be from 7% to 25% based on your current employment and your credit score.

Here’s how to get started as a borrower:

  1. Apply online—it’s free and takes just a few minutes
  2. Get quick approval on a fixed-rate, 3-year loan from $1,000 to $25,000
  3. Once approved, most loans fund in less than 2 weeks
  4. Pay interest and principal monthly automatically from your bank account

Our Verdict

For our Lending Club Review, it’s important to recognize that there’s a lot of opportunity in investing in Lending Club loans, but it’s still a relatively new investment product and likely shouldn’t be the bulk of your investing plan. Some have made interest rates upwards of 12% since the site went live, and others haven’t fared so well, but for a percentage of your income, it might be worth playing around with.

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American Banking News is committed to providing excellent coverage of the peer-to-peer lending industry. Be sure to read these articles about lending club to help with your personal lending club review: