January 18th, 2010
Review: Debt Consolidation Loans with Lending Club
Lending Club’s debt consolidation loans could be your best plan to reducing your debt. Nearly 60% of Lending Club borrowers using the site to consolidate debt or pay off their credit card. Lending Club uses a peer-to-peer lending model (P2P lending) to facilitate loans online between consumer lenders and consumer borrowers without the need of a traditional lender or bank.
What makes P2P-facilitated loans such an intriguing alternative to typical debt consolidation options? For a prime borrower, Lending Club offers lower interest rates than a bank, is more credible than debt consolidation companies, and more accessible than 0% APR balance transfer credit cards (which are getting harder and harder to acquire). Plus, if you participate in Lending Club’s DebtBuster Challenge promotion running until the end of January, you score a Lending Club care package with free merchandise.
Why It’s Worth It
The no-hassle online application enables you to find out quickly and for free what interest rate you qualify for. Their low, fixed interest rate is competitive in the market and starts at 7.89%. Lending Club’s standard, 3-year loan term keeps monthly payments manageable while maintaining a reasonably short loan life that won’t overwhelm you in long-term interest payments. Another plus is that the interest rate will never change throughout the term of your loan, unlike the variable rates of credit cards. There is no prepayment penalty if you pay off the loan sooner than 3 years, which some lenders will charge. Also, the automatic payment process deducst monthly from your checking account so staying on the road to debt reduction is a breeze.
The Catch
In order to secure a loan through Lending Club, good credit is a must. Given the nature of P2P lending, Lending Club has strict borrower qualifications to safeguard against default. Criteria for borrowers include a minimum FICO score of 660, a debt-to-income ratio below 25%, no recent delinquencies, bankruptcies, and charge-offs, no more than 10 inquiries on credit report in the last 6 months, at least 3 credit accounts of which 2 are open, and minimum 3 years credit history. Additionally, Lending Club sets borrowers’ interest rate based on their credit history, credit score, and loan amount; prime borrowers definitely have an edge in approval and better interest rate offers. Finally, there is a loan processing fee that ranges 1.25%-4.5%, depending on the borrower’s credit standing, which will be deducted from the loan amount.
Ditching That Debt Now
If you are in great credit standing and considering debt consolidation, Lending Club is worth looking into. Another alternative is Prosper, another P2P lending site with different borrower qualifications and uses a eBay-like bidding process to determine the loan’s interest rate. P2P loans as a debt reduction strategy has all the incentive you need, with Lending Club’s DebtBuster freebies and better interest rates, to get yourself on the path to debt freedom.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
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What about loaning money via Lending Club…is it a reasonably safe investment? With returns over 9% annually, how much greater is the risk than with my 1.5% interest savings? I’ve been tempted to try this, but don’t know how much I trust it…
Having good credit isn’t a catch, it’s something everyone should strive for, and it’s something that is very useful especially now with so many people in deep debt.
Well good credit history is also important though things are not looking good and people are in bad shape. But as it gets better, the credit history will again make the difference.
Great info on your blog for Debt Consolidation. If more people would visit blogs like yours and mine then more people would be in a more comfortable financial situation. The info is out there and most are free, they just have to look!