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Although the Federal Reserve has made borrowing incredibly cheap, lending companies are still hesitant to make many types of loans, including unsecured personal loans to individual borrowers and loans to small businesses. Many banks have tightened their lending criteria so that only a small fraction of borrowers can actually get loans. Fortunately for borrowers and small business owners, there’s opportunity in the realm of peer to peer lending to borrow money at reasonable rates. One of the firms, Lending Club, is now setting up more than $10 million in peer to peer loans each month. Here’s our Lending Club Review for 2014 and beyond.

About the Company:

Lending Club was founded in 2006 and currently has 48 employees. Renaud Laplanche is the company’s founder and Chief Executive Officer and the firm has originated more than $200 million in loans to date. Lending Club was originally based out of Sunnyvale, CA, but moved to Redwood City, CA in early 2010. The company has received several rounds of venture capital and has seen an explosion in their business in 2013 with tens of millions of dollars issued in new loans each month

How The Peer-to-Peer Lending Process Works

If a borrower wants to get a loan from Lending Club’s investors, they simply go through Lending Club’s online application process and then Lending Club will provide instant approval and state an interest rate that the borrower can get a loan at. After the borrower completes their loan application, the loan will go into a 2 week funding period where individual investors can opt to partially fund part of the loan. After the loan is fully funded, the borrower will receive the funds and repay the loan across 36 or 60 equal payments. Lending Club takes care of the payment processing and distributes the borrower’s payments back to the participating lenders.

Lending Club Review from a Lenders Perspective

Start out with a small loan portfolio and be ready for some trial and error before figuring out a good mix of loans to invest in.  Lending Club publishes the platform average net annualized return in real time, which in 2010 was consistently over 9.5%. Although it’s hard to pin down a magic number for an initial investment, it appears that investors who invest in 100 loans or more ($2,500 minimum investment) experience more stable portfolio returns (diversification is key).

Lending Club provides a great way to diversify one’s investment portfolio outside of stocks, bonds and real estate. Before you begin investing, make sure to understand how the process works and understand the risks involved. Start out with a small loan portfolio and be ready for some trial and error before figuring out a good mix of loans to invest in.

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.

Lending Club Review From a Borrowers Perspective

If you’re interested in getting a personal loan between $1,000 and $25,000, Lending Club might be an excellent way for you to get an unsecured loan with interest rates much lower than you would be charged if you simply borrowed on your credit card or got an unsecured loan from a bank. Lending Club loans amortize fully over a period of 3 years or five years (depending on what you choose). You will pay an interest rate between 5.42% and 21.14% depending upon your employment history and your credit score.  There is also an origination fee (service fee to issue the loan) that ranges from 2% to 5% of the loan amount.

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

There’s a lot of opportunity for investors to put money into Lending Club loans, but remember that it’s an alternative investment and should not make up the bulk of your investment plan. If you’re a borrower in 2011, Lending Club is an excellent way to get an unsecured loan, but make sure that you can repay the loan before taking it out.