Posted by Mike Smith :: August 3, 2007 @ 8:04 am

Using a home equity line of credit (HELOC) has traditionally been a common way for homeowners to fund home improvement projects. With unsecured P2P loans starting at only 7.45% APR, Lending Club may be able to loan you the money for your next project for even less. Here’s what one Lending Club borrow recently had to say about their experiences:

"Thank you Lending Club. Your service saved me 1.25% from taking a loan from my bank and substantially more if I had used a credit card. In addition, I found the Lending Club application process easy and convenient. I'll use you again to fund my next home improvement project."

What does saving 1.25% mean over the life of the loan? If you were to borrow $25,000 from Lending Club at 7.45% APR versus 8.70% APR (7.45%+1.25%) from your bank, you would save over $519. At higher interest rates, a difference of 1.25% could save you even more. While Lending Club was able to save this user 1.25%, it’s possible that you may qualify for even greater savings. The only way to know for sure is to apply to become a borrower on Lending Club. The application is fast and straightforward, without the mountains of paperwork and trips to the bank that you can probably expect if you want a HELOC.

If you are making improvements to increase the value of your house before selling it, an advantage of Lending Club loans is that you have three years to repay them. HELOC loans typically must be paid in full when you sell your home. When comparing rates on Lending Club to HELOC rates, remember that interest paid to a HELOC may be tax deductible.

Another advantage of the loans from Lending Club is that they are unsecured. That means that you are not tying your ability to repay directly to the equity in your house. Instead of putting up your house as collateral for your loan, you’re allowing your good credit to work for you. On the subject of your good credit, remember that only the outstanding balance on your loan from Lending Club will be reported to the credit reporting agencies. If you go with a HELOC, the entire credit line will show up in your credit report, even as you start to pay it back, which could potentially lower your credit score.

Traditionally, unsecured loans have cost more in the form of a higher interest rate. As you can see from the user experience described above, Lending Club’s model of cutting out the middle man and allowing people to lend directly to others has allowed interest rates to move to level comparable to Home Equity Lines of Credit.