Skip to main content
Menu
Back to All Blog Posts

Peer-to-Peer Lending (P2P Lending) 101: The C’s of Credit

You want to be your own banker? Fine. Now that you’ve joined Lending Club to either lend or borrow, see if you know what bankers know and if you’d like to think how they think. I’m not suggesting that there is only one way to think about money.

Banking—lending—is over 4,000 years old, why reinvent the wheel when we can benefit from the structured knowledge that has worked for so long? The oldest recorded bank loan, inscribed on a clay tablet found in the temples of Babylon around 2,000 B.C..

This involved two shekels of silver borrowed by Mas-Schamach son of Adadrimeni, from the sun-priestess Amat-Schamach daughter of Warad-Enlil, at the Sun-God’s interest, payable at the time of harvest.

Having said that, a good place to start your person-to-person lending education is with the four C’s of credit. Other C’s have been added over time, but these four (actually three, as will be apparent later) are enough for your purposes here at Lending Club:

1. Character. Character here refers to a person’s attitude and personal values in relation to his or her credit commitments. I would like to underscore the phrase “credit commitments,” because as long as the applicant has consistently met credit obligations, his or her personal lifestyle should not get in the way of your lending decision.

2. Capacity to Pay. For an employed applicant, capacity is estimated using disposable income versus the amount of the proposed monthly loan payment. For a self-employed applicant, the net business income, stability of the business, and the person’s managerial ability are considered.

3. Capital. Capital pertains to a borrower’s assets. A person’s properties and other valuables are indicators that the applicant has sufficient resources to live a good life and make a good living. The logic here is that a homeowner is more likely to be a good borrower than somebody who is not similarly situated.

4. Collateral. Sometimes, personal property and other assets can be used to secure a credit obligation. Collateral provides a motivation for the borrower to repay the loan, as well as a source of repayment for the lender if the borrower is unable to pay back the loan. Since Lending Club loans are unsecured at this time, collateral is not your direct concern.

These principles should serve you well as a borrower or a lender on Lending Club.

Personal Loan Rates

This is FREE and won't impact your credit score.

I want
Enter up to $40,000
for
My credit is:

To Read Next

3 min read

5 Smart Ways to Use Your Tax Refund

If you’re expecting a tax refund this year, you might be wondering what money moves can help you make…

Read More
3 min read

5 Steps for Building a Strong Financial Foundation

Do you want to be the master of your money? So many people crave financial health but feel less…

Read More
3 min read

Balance Transfer Loan or Balance Transfer Credit Card? How to Choose

Feeling stuck in an ongoing cycle of credit card debt? We know how frustrating it can be to continually…

Read More