Lending Club Blog

Peer-to-peer lending: how borrowers get better rates

The basic principle of peer-to-peer lending is very simple: by removing an intermediary in the financing process, direct peer-to-peer lending helps borrowers get better rates, and lenders get better returns. I will discuss lenders’ benefits in a later post; let’s focus here on the benefits to borrowers.

What exactly do I mean by “removing an intermediary” in the financing process? Well, banks pay up to 5.5% interests to savings accounts, and then lend the money collected through these accounts out to borrrowers, charging borrowers up to 12.5% interest rate on personal loans. The 7% difference goes into paying the banks profits and expenses, like maintaining thousands of branches and mailing promotions and special offers to acquire new customers. Lending Club is a service that lets people borrow and lend money directly with each other, bypass the banks, and save most of that 7% difference. The service operates fully online and includes users authentication, credit check, bank account verification and reporting to the credit agencies.

Lending Club rates start at 7.45% APR for members with a high credit score. Most members will pay between 8% and 12% interest, depending on their credit score and the amount of the loan they are taking: larger loans carry a higher interest rate. Interest rates of 8% to 12% are very attractive rates for “unsecured” loans (i.e., loans not secured by a vehicle or a home). In comparison, the average interest rate banks charge on personal loans is 12.32% , and the average interest rate on credit card balances is 13.82%*.

In addition to being a better financing option, Lending Club also provides a more responsible approach to credit: all loans to and from members are “amortization” loans, with equal monthly installments, meaning that you effectively repay part of the loan every month. This is a more responsible, cheaper, and more predictable way of borrowing than revolving credit cards, which let borrowers make minimum payments each month, with the balance continuing to accrue interest every month.

We truly believe we are doing a civic good here at Lending Club. We’d love to hear your comments!

Rex from Lending Club

*Federal Reserve G.19 weekly survey of commercial banks and finance companies, 4/6/07

Sunday, May 27th, 2007 at 11:27 am

Comments (4)

  1. Is this service available to Canadians? If not, are you considering
    making it so?

    May 28th, 2007 at 9:04 am

  2. Dan, Currently it is only available in the United States. Rex

    May 28th, 2007 at 9:42 am

  3. You guys have a great idea here. Business makes a lot of sense and
    looks like it has great potential.

    May 29th, 2007 at 10:12 am

  4. Oliver, Thanks! I hope you have a Facebook account and added our
    app. Rex

    May 29th, 2007 at 10:54 am

Recommended

Welcome Home

Lending Club named #5 on Forbes’ Most Promising Companies List

Get ready for tax season with Lending Club’s Tax Form Guide

New Adjusted Return Metric

See more
Lending Club Awards
  • Archives z

Recent Posts

Growing Your Business By Using Capital

Smart small business owners don’t wait to consider borrowing… Read More »
August 19, 2016

9 Reasons to Open an IRA

Retirement: a word that often comes with many connotations.… Read More »
August 5, 2016

6 Reasons to Get a Personal Loan

While it would be great if we all had enough… Read More »
July 29, 2016

Lending Club and the Marketplace Model

Some of our investors have observed the funding environment… Read More »
July 28, 2016

A Recap: Credit Strength on the Lending Club Platform

We are proud of our… Read More »
July 14, 2016

A Message to Investors from our President and Acting CEO

Today, our President and acting… Read More »
May 19, 2016

Lending Club Receives Tribeca Disruptive Innovation Award

Disruptive innovation comes in many… Read More »
April 29, 2016

Lending Club Business Financing Review

One of the biggest challenges of owning a small… Read More »
April 27, 2016

Lending Club partners with Funding Circle and Prosper to launch Marketplace Lending Association

Read More »
April 7, 2016

Lending Club Welcomes Maryland and North Dakota Investors!

We’re now open to retail… Read More »
February 23, 2016

2014

We went public today!

Ringing the bell this morning at the New York… Read More »
December 11, 2014

New and Improved Statistics Page

We recently redesigned our Loan Statistics page to make… Read More »
November 13, 2014

Lending Club Honored with Economist Innovation Award

This month I was honored… Read More »
October 15, 2014

Welcome Vermont Investors!

Today, we’re thrilled to welcome residents of the state… Read More »
September 4, 2014

We filed to go public today

We filed a registration statement with the SEC today… Read More »
August 27, 2014

Our Billion Dollar Quarter

We’re excited to announce  that we’ve facilitated over $5… Read More »
July 8, 2014

Is Lending Club Available in My State?

Is Lending Club available in my state? That is… Read More »
July 7, 2014

Lending Club Joins Senator Cory Booker to Discuss Improving Access to Capital for Small Businesses

Read More »
June 20, 2014

Lending Club Named a CNBC Top 50 Disruptor for a Second Year

For the second year in… Read More »
June 17, 2014

PRIME is now Automated Investing

Lending Club is excited to announce that PRIME has… Read More »
May 14, 2014
View All w