Lending Club Follows Mainstream Banks, Raises Interest Rates on Personal Loans

Peer to Peer Lending Services, such as Prosper.com and LendingClub.com, have been providing consumers a way to lend money to other consumers while side-stepping major financial companies for a couple of years now. These two companies have both faced the problem of what interest rates to charge their borrowers and both have come up with unique methodologies.

Prosper has decided to let the marketplace decide at what interest rate loans should be made. Borrowers on the site post the amount of money they would like a loan for, then lenders make an offer to loan the borrower money at a certain interest rate. The lenders compete with one another until the borrower gets the best interest rate that the market will bear. The borrower can then choose whether or not to take the loan at the interest rate that was bid.

Lending club takes a decidedly different approach. Instead of a bidding system, the company sets interest rates for individuals with specific credit ratings. A person with an “A” credit rating might get a loan at 7%, where as a person with a “B” credit rating might get a loan at 9%. This process is a bit more streamlined than the system that Prosper offers and gives investors a better idea of what interest rates they will earn and what default rates they might see.

As the amount of credit available in the market place has tightened, major banks raised the interest rates that they are charging consumers for personal loans and credit cards. This has led lending club to follow suit and raise the interest rates that they are charging customers. This means that investors will receive higher interest rates on new loans they make and borrowers will have to pay a higher interest rate on any new loans that they borrow.

As of August 1^st of 2009, Lending Club raised the interest rates that they charge customers by 50 basis points or 0.5%. This means that borrowers with an ‘A’ credit rating will now pay between 7.05% and 8.94% APR. Borrowers with a ‘B’ credit rating will now pay between 11.14% and 12.53% APR. Borrowers with a ‘C’ credit rating will now pay between 12.87% and 14.26% APR and customers with a ‘D’ credit rating can expect to pay between 14.61% and 16.00% APR.

The rates that borrowers pay through lending club are typically more competitive than that of a traditional credit card, making them a very useful option for debt consolidation. The rates are not as good as one would receive on a home equity loan or a home equity line of credit, however since the loans are unsecured, borrowers do not have to worry about losing their home if they cannot make their payment.

Investors will also benefit from these recent interest rate hikes. Lending Club reports that their average investors are earning an annualized rate of 9.62% on their money.

You can learn more about borrowing from Lending Club at www.lendingclub.com/borrowing/ or learn more about becoming a lender in LendingClub at www.lendingclub.com/lending/