Credit Card issuers earn just over $16 for every $100 in outstanding credit card balances. As you can see from the GAO analysis below, almost 80% of that revenue is generated from interest charged, with interchange (merchant fee), penalty fee and annual fee revenue following in the distance. Click the below graphic to view it fully.
Another way to look at the above chart is that borrowing on your credit card will cost you around 16%. We know from this same GAO study that more than half of all credit card accounts carry interest rates above 15%, and this revenue breakdown certainly gives further support.
How does Lending Club compare? If you are planning to borrow money, or preferably looking to consolidate your credit card debt, Lending Club helps you get loans at rates starting just over 7%, with an average interest rate of around 9%. 100% of the interest revenue goes to lenders, typically other people in your community. For comparison purposes, our borrower fees will add between 0.25% and 0.67% to the APR (our loan servicing fee divided by the loan term).
Here is something to think about today. You can help your community, and get better rates. It doesn’t get better than that!
• With Lending Club you will likely receive an average rate of 9.25% (versus a Credit Card you will likely receive an average rate of 16%).
• 100% of your interest goes to someone else, typically in your community, who funded your loan
See compare borrower rates or rates and fees for more information.
Better rates. Together.
All income levels carry credit card debt. There were over 5 billion credit card mail solicitations sent to consumers during 2004. What does 5 billion look like for the consumer?
• 47 pieces of mail per household
• 56,000 trees wasted!
• 95,000 days (if each person takes 10 seconds to read each one)
• $1 billion in cost (if each piece costs about 20 cents)
All of that mail must be sent for a reason. We would assume there is some justification for all of that effort (and cost). One possible result of all of that junk mail could be that a significant portion of all income groups now carry credit card debt.
The majority of those in the middle class carry credit card debt, but we were surprised that more than 1/3 of the top income earners in America also carry credit card debt. Source: GAO Study
Our take on why there is so much credit card debt at all income levels is that we are all so busy with life’s challenges that we don’t find the time to do comparison shopping.
It is easier to believe the promotional offer for 0% interest than it is to research and set up a responsible loan. That is where Lending Club comes in, and we promise not to send you any promotional mailings.
Better rates. Together.
Double Cycle Billing “eliminates the interest-free period of a consumer who moves from non-revolving to revolving status. In other words, in cases where a cardholder, with no previous balance, fails to pay the entire balance of new purchases by the payment due date, issuers compute interest on the original balance that previously had been subject to the interest free period.”
Source: GAO Study
As you can see from the GAO chart below, using a double cycle billing method significantly increases interest income for issuers. In the case below, by a factor of 100!
Please click the example graphic below to see the full size image.
Roughly 1/3 of credit card issuers use this method of billing, and it clearly demonstrates that there is no such thing as a free lunch (or a free grace period).
So, here we are again talking about installment loans. Installment loans are repaid with a fixed number of periodic equal-sized payments. Nothing changes during the life of the loan, and at the end of the 36 month term your loan is completely paid.
Lending Club only offers fixed rate installment loans. You will see your rate and know that after 36 payments you will have paid off that debt! Nice feeling isn’t it? We do not want to create more debt; we want to help our community with more responsible methods of getting out of debt.
Let’s contrast that with typical credit card offerings. The Government Accountability Office (see study on right) informs us that
“Multiple Interest Rates May Apply to a Single [Credit Card] Account and May Change Based on Market Fluctuations.”
According to the study, 93% (25 of 27 card programs) of credit cards have variable interest rates, most of which are re-set monthly. The rate may vary based on whether it is being applied to a purchase, a balance transfer, or a cash advance. And what rates do you think most people paid? In 2005, 11% of active credit card accounts paid more than 25% APR on purchases. 57% paid more than 15% APR. Check out page 71 of the GAO study for more.
For my money, Installment Loans just make sense (not more dollars in bank profit)!
Better rates. Together.
John from Lending Club
Lending Club takes a unique approach to person-to-person lending. We use a matching system that combines the latest search technology with the power of social networking—in other words, this is where the magic happens.
Our matching system uses a powerful algorithm called LendingMatch™, which works along the lines that any two people are connected to each other by varying degrees of separation. LendingMatch™ finds relationships between borrowers and lenders based on geography, education, profession, or connectedness within a given social network and then presents lenders with diversified loan portfolios reflecting these relationships as well as the lenders' individual risk preferences. Moreover, LendingMatch™ serves to show borrowers that their loans are not being funded by faceless nameless banks, but rather are coming from real people.
LendingMatch™ underscores a founding principle of our company—we believe that bringing lenders and borrowers together in a marketplace that leverages existing communities and relationships will make for a better experience for all participants. Pointing lenders toward compatible borrowers will help ensure that loans get funded, while letting borrowers know that members of their community supported their financial needs will increase the overall performance of the loan (as borrowers would be less likely to default).
* Screenshot examples are located on the inner side bar: Lend Money Example, Portfolio Example.
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