The Lending Club (LendingClub.com) was established in 2007 by CEO Renaud Laplanche as an online financial community where both borrowers and investors can benefit from a peer-to-peer lending format.
Lending Club says that people wishing to invest can open an account instantly and begin building their portfolio. People hoping to borrow money can fill out a loan application and get an instate rate quote.
The Lending Club’s website says they replace the “cost and complexity” of bank lending with a faster, smarter way of both borrowing and investing. But how do they do it?
Lending Club is not a bank. Instead, they match investors with credit worthy borrowers for person to person lending, which results in better rates for borrowers and better returns for investors.
According to their website, banks have administrative and infrastructure costs that have to be built into the rates and fees they charge their borrowers. Since Lending Club does not have those extraneous costs, their borrowers get better rates.
However, since Lending Club is not a bank, their borrowers are limited in how much money they can ask to borrow. Currently, they do not allow borrowers to request more than $35,000.
Who Qualifies For Peer-to-Peer Lending?
Not many people will qualify for peer-to-peer lending. Lending Club says their investors have averaged over 9.5% net annualized returns since they were established in 2007.
But Lending Club only borrows money to “the most creditworthy borrowers,” and historically has approved less than 10% of loan applications.
In addition, they want investors who are able to begin their portfolios with at least $20,000 in investments.
So while the Lending Club may be “faster and smarter” than traditional banks, and have the ability to offer better rates and returns than traditional banks, it is not a reasonable alternative to a bank for much of the country.