More Thoughts On LendingClub

by Dual Income No Kids on March 18, 2008 · 0 comments

Hi All,

Just wanted to update our readers about our thoughts on LendingClub. For those of you who don’t know about LendingClub, its a person to person on-line money lending service like prosper.com or zopa.com. We got a promotional offer a while back, and since we like discussing these sorts of things, today’s posting is on LendingClub’s screening procedures for loan applicants.

According to the email exchange I struck up with Rob Garcia, LendingClub’s web promoter, their service actually undergoes a rigorous screening process before listing a borrowers loan request.

Their screening process has the following elements:

1) Staff verify the basic facts of all applications, including addresses, phone numbers, employment, etc.
2) Loans with high credit scores (e.g. FICO of 700 or higher) but a short credit history get extra scrutiny. LendingClub defines a short credit history as six months or less.
3) Borrowers with FICO scores less than 640 are not permitted to list requests
4) Individuals with current delinquencies are screened out.

This processes results in a rejection rate of about 1 out of every 9 or 10 loans.

LendingClub also has a fairly aggressive follow up and collection processes. About 80% of loans on their service get funded. Provided that a funded loan is late, LendingClub follows up with an telephone call. Its been their experience that most of the time late payments are due to borrower forgetfulness or other temporary issues rather than malfeasance. For borrowers who are non-responsive LendingClub has an attorney on staff and works with a collection agency.

Why does all this matter for you? Well, if you’re thinking about investing your money using a peer to peer service, its important to know what will happen if your borrowers go belly up. Believe us, this can happen. We had 7 of our loans default when we used prosper.com. So, if you want to get into on-line lending the integrity of your service’s business model is therefore an important consideration.

Best,

James

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