Borrowing Money from Lending Club

Borrowing Money at Lending Club

Image shows one woman holding a bag of money, and the other holding a box full of documents. Text reads:

Image by Maddy Price © The Balance 2019

Lending Club is one of the first peer-to-peer lending services, and it’s still a major player in the P2P marketplace. Instead of borrowing money from a bank, you borrow from “investors.” Traditionally those investors have been individuals with a bit of extra money, but P2P loans have evolved so that in some cases a bank or institutional investor fund your loan.

Why use P2P Loans?

You’ve got several options when it comes to borrowing. P2P loans are just another option. They’re often less expensive than loans from brick-and-mortar banks, and in some cases, they’re easier to qualify for. The process is also easy—you can do everything online (which is also true for many banks these days, but some still require paperwork).

As a wise consumer, you should check out all of the options and go with the best one. Be sure to include local credit unions in your search, and other non-bank online lenders.

Basics of Lending Club

  • Getting a loan: to get a loan, you’ll need to create a request online. Assuming you qualify to borrow, your loan may be funded within a few days. In rare cases, it takes up to two weeks for investors to fund your loan. If you don’t get offers to fill 100% of your loan, you might have the option to take a “partially funded” loan – which may be better than nothing.
  • Types of loans: loans can be used for just about anything. Business loans are available, but not for startups. Your business must have been in operation for at least two years. If you get a personal loan, you can use the funds for anything you want—including your small business, healthcare expenses, home improvements, and more. There are, of course, a few exceptions (you can’t use the money for illegal purposes, higher education, and other restricted purposes).
  • Eligibility: to get a loan, you must be at least 18 years old and a U.S. citizen, permanent resident, or on a long-term visa. As with most loans, you’ll need income to repay the loan, and you might need to verify that income (by providing documents like W-2 Forms or tax returns, or Lending Club might call your employer). You’ll also need to link a U.S. bank account to Lending Club for funding. Lending Club will also check your credit scores. You don’t need perfect credit, but borrowing is less expensive with good credit.
  • Logistics: you can borrow up to $40,000 for personal loans and $300,000 for business loans. Your loan will be repaid out of your linked bank account with monthly payments (unless you pay by check, which costs $7.00 per payment, and is not a good idea). Loans come in three and five-year terms, but you can pay off your debt early without any prepayment penalty. You’re allowed to have up to two loans outstanding at a time (you can generally apply for a second loan after you’ve made 12 on-time payments on your first loan).
  • Credit reporting: your loans and payments are reported to credit bureaus. That’s good news if you pay on-time, and bad news if you’re unable to pay. These loans can help you build credit if you make your payments every month, making it easier to get larger loans (like a home loan) in the future.
  • Collateral: you typically do not need to pledge collateral to get approved. For loans above $100,000, collateral might be required. This keeps the process simple—there’s less paperwork, and you (and Lending Club) don’t have to deal with filing and releasing liens, or making personal guarantees.
  • Fees: as with any loan, you’ll pay interest on the amount you borrow. You can minimize that cost by repaying the loan as quickly as possible—paying more than the minimum is a great way to save. You’ll also pay an origination fee, which is 1% to 6% of your loan amount. For example, if you borrow $2,000 and pay a 5% origination fee, the fee would be $100, and you would receive $1,900 in your bank account. Most borrowers will not qualify for the 1% fee (only borrowers with great credit pay 1%). Other fees apply if you pay late or pay by check.
  • Privacy: you will not know who is lending you money, and individual lenders won’t know who you are. Any communication or questions about your loan will go through Lending Club. Lending Club is generally a safe and legitimate way to borrow, with industry-standard security in place. As always, be sure you're at the legitimate site before you provide sensitive information such as your Social Security Number.
  • Joint applications: as of this writing, you can only apply on your own—you can’t apply jointly or use a cosigner. That means you’ll need to qualify for the loan using your own credit scores, and you’ll need sufficient income to repay the loan.