If you are looking to take out a loan, LendingClub* could be a great option. They are now approving people with credit scores as low as 600, and for loan amounts up to $40,000. The Annual Percentage Rate (APR) can start as low as 5.99%, and (depending upon your score) go up to as high as 35.89%.
A personal loan has the potential to save you serious money. According to LendingClub, they are able to reduce the average customer’s credit card interest rate by 25%.** And, if someone uses a LendingClub loan to pay off their credit card debt, they usually see an increase in their credit score. 75% of borrowers experienced a FICO score increase three months after obtaining their loan, with an average increase of 20 points***.
You can apply and see your interest rate and the amount you can borrow without hurting your credit score. LendingClub uses a “soft inquiry” to determine your eligibility. You will only have a hard credit inquiry on your report when you decide to book the loan.
In this LendingClub review, we will explain:
- What it takes to get approved for a LendingClub loan
- How to apply, how long it will take and what documents you will need
- The terms of the loans offers
- Pros and Cons of a Personal Loan with LendingClub
How can I get approved?
If you live in Iowa or West Virginia, you can not receive a loan from Lending Club. Residents of the remaining 48 states are eligible.
LendingClub* will look at a few items to make their determination. Here is a summary of some of their most important criteria:
- Your credit report will be reviewed. In order to be approved, you:
- Should not have a lot of recent hard credit inquiries. You will not be punished for a few applications, but if it looks like you are constantly applying for credit, you could end up being declined. Note: A soft pull, like the one used by LendingClub to prequalify, does not count as a hard inquiry.
- Should have some credit history. This could be a normal credit card or a store credit card. In order to have a FICO score, you need at least one active account with six months of history. Without a score, you will likely be rejected.
- Your credit score (FICO application score is used) should be at least 600. The higher your credit score, the better your chance of being approved.
- You must not have a high debt to income ratio. If your ratio is above 50%, excluding mortgages, you will find it difficult to be approved for credit by most lenders. In order to calculate this ratio, LendingClub will look at your monthly payments that appear on your credit report. This would include your auto payment, the monthly payment on any credit cards or loans, and any other debt (for example home equity) that shows up on your bureau. Non-bureau payments (like utility bills, mobile phone bills) will not be included in this calculation. If your total monthly bills (excluding mortgage) are $400 and your total monthly income is $1,000, you would have a 40% debt to income ratio.
- You must be employed and be able to demonstrate (and possibly verify) your income.
In addition to the minimum criteria outlined above, LendingClub has its own proprietary score that they use. Most banks and finance companies use a combination of rules and custom credit scoring. LendingClub will use their custom score model to determine how much you can borrow and what interest rate you will be charged.
You can check to see if you are approved without hurting your credit score. Rather than guessing, we recommend that you check to see if you qualify.
At MagnifyMoney, we have have invested $1,000 in LendingClub loans as an experiment. That gives us access to a lot of LendingClub data, which we analyzed to help figure out who is most likely to get approved.
On the date this story was originally published (terms and conditions are updated over time), there were 1,004 loans approved by LendingClub and waiting for funding. We looked through the data on those approved loans to figure out who is likely to get approved.
Delinquency (missing payments):
- Only 10 (1% of the total) had delinquency on the credit bureau. Another way to say this: 99% of the people who get approved had no delinquency. In other words, they are current on all of their accounts.
- 793 of the 1,004 customers (79% of the total) had no delinquency in the last two years.
- Of those who did have delinquency, the average amount was $436.
Summary: If you are delinquent on any account at the time of application, you will most likely be rejected. If you had any missed payments in the last 2 years, they better be for small amounts. Accounts with big balances and missed payments most likely mean you will be rejected.
Civil judgment can appear on your credit report if you lose (or do not show up to) a court hearing. Examples could include failure to pay alimony or child support, and would remain on your credit report for up to 7 years.
- 797 of the 1,004 (79%) had no judgment at all on their record.
- 207 of the 1,004 (21%) had a judgment.
Summary: If you do have a judgment, you are more likely to get approved if the judgment happened many years ago.
We looked at collection items in the last 12 months, excluding medical. (It looks like LendingClub will look at medical debt differently from other types of debt). But if you have non-medical collection – good luck getting approved. 987 of the 1,004 (98%) approved accounts had no collection items.
Summary: If you have medical collection items, you have a decent chance of approval. However, any other type of collection item and you will likely be declined.
Similarly, 98% of the people approved had no tax liens. If you have a tax lien, you will likely be rejected.
LendingClub has a low approval rate, because they have a very specific profile of customer. The typical customer has quite a bit of credit card debt, but has always paid on time. Here are 2 real examples:
- A customer has $102,000 of annual income,674 FICO and $28,247 of credit card debt (91% utilization, which keeps his score below 700). He had never missed a payment, has been with the same employer for 10 years, and had his credit since 1999. The customer was looking for a way to reduce the interest rate on his debt, and was approved for a 7.89% interest rate.
- A customer has income of $40,000, 660 FICO and $5,715 of credit card debt. He had missed some payments on his credit card 32 months ago and has only been at his job for 12 months. He was approved, but was given an interest rate of 17.14%.
You can see that LendingClub still looks at things like stability (how long have you been working) and repayment history very closely. And even a single missed payment in your history can have a huge impact on the rate you will pay at LendingClub.
How to Apply
It is easy to apply online (you can do so here” ]*).
Step 1: Check Your Rate Online
You start the application process by filling in basic information on the home page, which includes how much you want to borrow, how much you want to borrow and an estimate of your credit.
You will then be taken to Page 2, where you will need to create a LendingClub account and provide some basic personal information:
That is all you need to enter. They will use your last name and zip code to try and match your information with the credit bureau. The next screen will give you options. In the top box, they will show your the loan the most closely matches your requested loan amount. In this case, I had applied for $15,000:
They will then give you other options (including price points). Below is an example of the additional options that I was given:
You may be wondering why there is a difference between the interest rate and the APR. Because LendingClub charges a non-refundable origination fee, the APR will always be higher than the interest rate. And this APR assumes that you do not prepay the loan. If you pre-pay earlier, the actual APR that you will have paid will be even higher.
If you decide to proceed with the loan, you then have to complete a few more steps. You will need to input your contact information, your monthly mortgage/rent information and your employment information.
LendingClub will then give you the detailed loan terms, which you will need to agree. And then you provide your bank account information, which will be used both for the loan disbursement (they will send you the money) and for your monthly repayment.
After you have accepted the terms and conditions,LendingClub will review your file. They may decide that they will want to verify your employment and salary information. That means they could reach out to your employer for confirmation. And they may ask for salary documentation or tax returns from you.
Once all of the information is provided, LendingClub then puts the loan out for funding. Depending upon the activity of the investors on the platform, your loan could get funded immediately, or it could take a few days.
Once the loan is funded, you will then have your loan disbursed.
One important thing to remember: LendingClub has a relationship with WebBank, and your loan agreement is actually with that bank. That is good news for you, because you are borrowing from an FDIC-insured lender and all consumer protection given to borrowers of any bank are given to you.
Terms of the Loan Offer
LendingClub will offer loans up to $40,000.
You can borrow the money for up to 60 months.
Your interest rate will depend upon the internal score developed by LendingClub. They will give you a grade between A and G. A is the best grade, and you can qualify for the highest loan amount at the lowest interest rate. G is the worst grade, and you will pay the highest interest rate for the smallest amount borrowed.
Although they do not share the details of the score, our review of the data shows that items like previous delinquency, high debt to income and short time at job or employment can all have big impacts on your score, and ultimately the interest rate that you will pay.
Below is a chart that shows the range of interest rates by score:
The grey box in the background is the average interest rate charged to the borrower.
The colorful box up front is the average return that the investor receives. It is a lower number, because it takes into account the customers who do not pay back their loans.
Pros and Cons of a LendingClub Loan
LendingClub can be a great tool for borrowers, helping them to get out of debt faster. However, LendingClub is not the perfect choice for everyone. Ultimately, you should choose the loan that has the lowest interest rate, and if that is LendingClub – go for it!
- You can check your interest rate without hurting your credit. Everyone should do this
- Applying online is easy, and only takes a few minutes
- The interest rates for some people can be very competitive.
- If you pay off your credit cards with a personal loan, you will see your credit score go up over time (because the utilization on your credit cards drops to close to 0%)
- They have very strict underwriting criteria. Although they approve people with scores in the mid-600s, they have a number of additional rules. If you have missed any payments or have any collection items, you will have no luck here.
- If verification is required, the loan processing time can take a while. It could be a week or more.
- For some people, especially highly educated individuals (via SoFi), you can get a better interest rate elsewhere
- They charge an up-front fee that comes out of the loan amount. Sometimes it isn’t clear (and you should have asked for more). And, even thought they don’t have prepayment penalties, the origination fee is a back door way of charging just that.
LendingClub has revolutionized personal loan in this country. For some people, this could be the perfect way to get out of debt. For others, one of their competitors may be better (find them all listed and reviewed here). But, we have to remember that it is highly unlikely that any of the others would even be here without LendingClub and its ability to transform marketplace lending.
*We receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.
** Based on responses from 6,279 borrowers in a survey of 95,998 randomly selected borrowers conducted from 1/1/16 – 12/31/16. Borrowers who received a loan to consolidate existing debt or pay off their credit card balance reported that the interest rate on outstanding debt or credit cards was 20% and average interest rate on loans via Lending Club is 15.1%. The origination fee ranges from 1% to 6% and the average origination fee is 5.44% as of Q4 2016. Best APR is available to borrowers with excellent credit.
*** Average FICO score increase is based upon the average credit score change of all borrowers who took out a loan via Lending Club between January 1, 2013 and June 30, 2015 with a stated loan purpose of debt consolidation or pay off credit cards.