Posted by Lending Club :: October 5, 2010 @ 5:30 am

Last week, American Banker published a great article highlighting that some traditional banks are ramping up their promotion of personal loans.  It’s not surprising news, given that more and more consumers are waking up to the fact that credit card companies tend to lure people with introductory rates and gimmicky offers, go out of their way to stick them with hidden fees and get them hooked into the minimum payment trap.  In addition, the overall decline in home values have practically killed the availability of home equity lines of credit.

What’s notable about this story is that the writer, Sara Lepro, points out that personal loans are kind of “old-school” or “retro” investment vehicles.   It’s true, they pre-date credit cards and many other financial products.  But, what sometimes happens when we talk about personal loans here at Lending Club is that people act as if personal loans are some new, risky, “flash in the pan” concept.

Perhaps the way we issue personal loans is innovative, somewhat flashy, and far more efficient than the way traditional banks do it.   But, the concept of personal loans is – in many ways – time-tested, simpler and much safer for borrowers than many convoluted new credit programs available today.   Lending Club personal loans offer clear terms, no hidden fees, fixed interest rate and payment schedules, and arguably the best borrowing experience available on the web today.  This has translated into fast growth at Lending Club, where we issued more than $12M in personal loans last month alone, and more than $165M since inception.

From our perspective, the biggest difference between what we do and what the banks do is provide very clear underwriting criteria for personal loans – something the big banks have yet to do – and developed a lower-overhead, more efficient model to provide borrowers with lower rates and, investors with better returns.

In the article Lepro points out that “The annual percentage rates (on personal loans from banks) fall between 9% and 27.5%.”  By comparison, our rates at Lending Club fall between 7.93% and 24.15%... So yes, our more efficient model helps us pass the savings on to you, the borrower.  Tell a friend!

Other interesting data from the article:

• During the second quarter of this year, banks sent out 82 million solicitations for personal loans, estimates Mintel Comperemedia Inc., a market research provider, up 13.2% from the first quarter and 1.5% from the year-ago period.
• Wells Fargo wrote 23,294 secured and unsecured personal lines and loans (which includes loans for boats, planes and motorcycles), up from 20,505 in the first quarter. The San Francisco bank has more than 2 million of the loans on its books. It has offered personal loans for the last 10 years.
• The annual percentage rates fall between 9% and 27.5%, depending on the applicable state laws. Customers with a good relationship can get a rate as low as 8.5%, Vallat said.
• JPMorgan Chase & Co., for one, said it does not offer personal loans. Neither does Bank of America Corp., although spokeswoman Betty Riess said the Charlotte banking company is evaluating the idea.

With traditional banks ramping up their promotion of personal loans, and peer loans gaining rapid popularity in the US, it is clear that personal loans are back and experiencing a resurgence.   One positive outcome of the financial crisis is that we seem to be going back to more responsible borrowing and banking standards.

Referenced article: "Pitching Personal Loans to the Post-Crisis Consumer" by Sara Lepro on American Banker.

Lending Club: Better Rates. Together.