LendingClub Review: Legit Platform or Risky Business?

Is LendingClub Legit? A Comprehensive Review

Considering a loan or investment opportunity through LendingClub? It’s natural to be cautious. This in-depth review dives into LendingClub’s functionalities, trustworthiness, and potential drawbacks to help you make an informed decision.

The Frustrations of Traditional Loans

Many people, myself included, have encountered the frustrations of traditional bank loans. The process can be cumbersome, riddled with complex paperwork and lengthy applications.

Often, you face high-interest rates and limited flexibility. LendingClub offers a compelling alternative: an online peer-to-peer lending platform that streamlines the process for both borrowers and investors.

My Search for a Better Loan Option

Six months ago, I needed a loan to cover my wedding expenses. While the cost wasn’t extravagant, it wasn’t something I could comfortably manage out of pocket. Traditional loans seemed like a hassle, so I ventured into the world of online lenders.

My initial search yielded around 15 loan websites, but alarm bells started ringing quickly. Many had generic, stock photos and lacked clear contact information. These characteristics are often hallmarks of predatory payday loan sites.

These lenders are notorious for charging exorbitant interest rates, employing aggressive collection tactics, and potentially even misusing personal information.

Why LendingClub Stood Out

Thankfully, I stumbled upon LendingClub. While it had a superficially similar online presence to those sketchy sites, key differences instilled confidence:

• Transparency: LendingClub provides clear and readily available contact information. This stands in stark contrast to lenders who hide behind a veil of anonymity, making them difficult to reach if problems arise.
• Reputation: They have a good standing with the Better Business Bureau (BBB) and have been recognized by Harvard Business Review as a groundbreaking idea. This level of recognition speaks volumes about their legitimacy and innovative approach.
• Competitive Rates: Their advertised Annual Percentage Rates (APRs) were comparable to what I could expect from a traditional bank loan, assuming I had good credit. In my case, I was able to secure a loan with an interest rate around 6.8%, which was significantly lower than the rates offered by some of the online lenders I encountered initially.

Understanding the LendingClub Ecosystem

LendingClub operates as a marketplace that connects borrowers with investors. Here’s a breakdown of the service for both parties:

• Borrowers: LendingClub offers an attractive alternative to traditional bank loans. The platform facilitates faster loan approvals and potentially lower interest rates. The entire loan application process is conducted online, ensuring convenience and security. You can receive an instant rate quote upon application, allowing you to gauge your potential loan terms before fully committing. There are no hidden fees associated with applying for a loan. You only pay an origination fee, which is a percentage of the loan amount, if your loan is successfully funded by investors on the platform.

• Investors: LendingClub allows you to potentially earn a higher return on your investment compared to similar risk options. Investors create accounts and build diversified portfolios by funding borrower loans. You can choose to invest in individual loans or utilize LendingClub’s automated investment tools to spread your investment across a variety of loans based on pre-selected criteria. Investors earn a portion of the interest paid back on the loans they fund. You can even reinvest your earnings for further potential gains.

Simplifying Repayment

The loan repayment process on LendingClub is straightforward and user-friendly. You can link a bank account for automatic monthly deductions, ensuring timely payments and avoiding any late fees. LendingClub sends email reminders a few days before each withdrawal to ensure sufficient funds are available in your linked account.

Early payments are encouraged and do not incur any interest penalties. This can be helpful if you have extra cash flow and want to save on interest charges.

Addressing Late Payments and Missed Withdrawals

Missing a loan payment comes with a late fee to compensate investors for the delay in receiving their returns. This fee applies only once per late payment.

Similarly, if there are unsuccessful attempts to withdraw your monthly loan payment due to insufficient funds in your linked bank account, a separate fee will be incurred for each failed attempt. It’s important to maintain sufficient funds in your linked account to avoid these additional charges.

Investing Made Easy

Becoming an investor on LendingClub is a simple process. You can open an account and transfer funds electronically through various methods like PayPal, check, wire transfer, or a linked bank account. Diversification is highly encouraged, meaning spreading your investments across multiple loans to minimize risk.

This helps mitigate potential losses if a borrower defaults on their loan. LendingClub even offers a PRIME account option for those seeking assistance in managing a diversified portfolio. This service provides automated investment tools and personalized recommendations based on your investment goals and risk tolerance.

Prioritizing Security and Transparency

LendingClub takes security very seriously. Borrowers’ and investors’ personal and financial details are protected using industry-standard encryption protocols.

Transactions occur strictly on a business basis, with no identity reveals beyond what’s necessary to complete transactions (like names and loan amounts). This helps protect user privacy and reduces the risk of identity theft.

Addressing the “LendingClub Scam” Rumors

LendingClub understands that some potential users might be wary due to rumors or negative experiences with other online lenders.

They prioritize transparency to address these concerns. Their company policies are readily available online, and they have a dedicated customer support team to answer any questions or address concerns promptly.

They provide detailed information about their operations, management team, borrowing and investing guidelines, and ongoing news and updates through their website and blog. This level of transparency helps build trust and fosters a sense of security for both borrowers and investors.

The Verdict: Is LendingClub Legit?

Based on my experience, LendingClub is a trustworthy platform. It offers a viable alternative to traditional loans for borrowers seeking competitive rates and a streamlined process.

For investors, LendingClub provides the potential for a higher return on investment compared to some traditional options. However, it’s important to remember that all investments carry inherent risk.

Important Considerations Before Using LendingClub

• Risk: As with any investment, there’s inherent risk involved with LendingClub. Borrowers may default on their loans, which can impact investor returns. LendingClub offers tools to help mitigate this risk, such as diversification and creditworthiness checks on borrowers. However, it’s crucial to understand that these tools don’t eliminate risk entirely.
• Interest Rates: While LendingClub can offer competitive interest rates, they are not guaranteed to be lower than traditional banks for all borrowers. Your creditworthiness will significantly impact the interest rate you receive as a borrower. Investors should also be aware that returns are not guaranteed and can fluctuate based on the performance of the loans they choose to fund.
• Fees: Be mindful of the origination fee for borrowers and the potential for late payment and failed withdrawal fees. Understanding these fees upfront can help you make informed financial decisions.

Alternatives to LendingClub

While LendingClub is a well-established platform, it’s not the only option in the peer-to-peer lending space. Here are a few reputable alternatives to consider:

• Prosper: A pioneer in the peer-to-peer lending industry, Prosper offers similar functionalities to LendingClub.
• SoFi: SoFi caters to a broader range of financial needs, including student loan refinancing and personal loans.
• PeerStreet: This platform focuses on real estate loans, offering a unique investment opportunity for accredited investors.

Final Thoughts

If you’re looking for a legitimate and potentially faster loan option, LendingClub deserves consideration. However, carefully weigh the risks involved, compare interest rates with traditional lenders, and consider alternative platforms before making a decision.

For investors, LendingClub offers the potential for diversification and potentially higher returns, but remember that all investments carry inherent risk.

By thoroughly understanding the platform and its limitations, you can make informed financial decisions about whether LendingClub is the right fit for your borrowing or investing needs.

Guest Post: This article was published as part of the Guest Post Series. Guest posts come from leading experts in business, finance, and Investing. The series tries to bring a diverse range of perspectives on the critical issues of our time. The views expressed in this article are solely that of the author and do not necessarily represent the views or opinions of Finance4.Net.