The peer-to-peer lending service of Lending Club was established in 2006 as a means to provide and receive loans outside the traditional banking institutions. The peer-to-peer lending industry and Lending Club are growing in popularity. Competitive sites like Lending Club’s chief rival Prosper.com has been gaining more exposure that is both positive and negative.

Risks of Peer to Peer Lending

Peer to peer (P2P) lending can be an effective means for investing or achieving the funding you are seeking for a variety of reasons. With peer to peer lending, there are risks for both borrowers and investors such as defaulting on loans and investors losing out on returns. Peer to peer lending carries risks similar to loans with big banks but for investors a default can cause great financial difficulty.

P2P Lending Club Complaints

Associated with the risks of peer to peer lending, there have been some complaints voiced by users of Lending Club website. While complaints about Lending Club have been limited, there are some concerns to be addressed including:

Investor Clarification

There have been concerns about how the investor’s rate of return is explained. The Lending Club’s website provides an overview of a high rate of return for an investor but may prove to be overinflated since the majority of the peer to peer lending loans were only at terms on the average of 14 months. This calculation can be misleading to new investors.

Investing Process

An issue that has been expressed about the process of Lending Club’s investment process that is common is the fact that investors often have money in their accounts that are not collecting interest. Once loan repayments have been received, the money sits in an account and does not collect interest until the investor has time to reinvest the funds. Additionally once an investor bids on a loan, the funds are held in the account for up to a period of two weeks for the processing of the loan is completed. Suggestions for paying investors a fixed rate of interest for funds not invested have been made to improve the service.

Limited Reinvesting

Because funds that are not invested do not gain interest, investors are limited in their gains. In order to be able to reinvest cash automatically, investors need to have put forth $10,000 or more. Anyone investing less than that have to manually reinvest their repayments funds from other loans to keep gaining interest.

Overall, complaints regarding Lending Club are limited and the process seems to work well for both borrowers and those who invest funds. The interest rates and loan processes have some room for improvement but seem to please those interested and involved in peer to peer lending through Lending Club.

When looking for a loan or investment opportunity, many consumers turn to banks and credit unions.  These traditional players in the world of finance are the main providers of funding and investment opportunities for average Americans.  Of course they do not monopolize the market completely with many other companies providing investment and borrowing opportunities.  When looking for a company with which to do business in terms of financing or investing, Prosper.com and Lending Club have become leading players in the world of peer-2-peer lending.  As such complaints about each should be taken into consideration before deciding if this niche in the financial industry is one be concerned about.

When searching the Internet for Prosper.com or Lending Club complaints, consumers will soon discover that some of the problems that plagued these companies in the early years have since been resolved.

A major concern for early investors which proved to be justified was fear of default.  When lending money to other individuals through a peer-to-peer lending program, there is always a risk of default.  Just as a bank or credit union requires borrowers to meet certain requirements, both Prosper.com and Lending Club also have standards which must be met.  This was not necessarily the case when the companies first launched, when credit requirements were more lax.  Over the years and after early investors lost money, the standards have been raised which makes investing in either program a reasonable choice for today’s investor.

The benefits for both borrowers and investors are clear.  When borrowing from a peer-to-peer program such as the ones offered by Prosper.com and Lending Club, borrowers can get better interest rates on loans than those offered by banks and credit unions.  Conversely, investors can usually see a higher return on their investment than achieved through many other investment vehicles.  Of course there is always a risk of default or loss when investing money, however the risk has been greatly minimized due to an increase in credit requirements for borrowers.

The best way for individuals to avoid financial scams is by researching any company or process before making a financial commitment. This is true of both investment choices or consumers in the market for a loan.  The internet is a great place to start with the Better Business Bureau and a search of consumer complaints.  If individuals have reported problems in the past when dealing with a company, heed the warning and consider another source for funding or investments.

If you do a Google Search for Lending Club or Prosper, a common autocomplete suggestion that comes up is “Lending Club Scam” and “Prosper.com Scam.” These searches are commonly performed not because Prosper or Lending Club are operating without regulatory approval or are a scam in some other way, but because people have natural concerns about financially innovative companies and the peer-to-peer lending industry as a whole.

It’s certainly reasonable to have a healthy level of concern about new financial products, especially since the world is riddled with financial scams, but you can rest assured in that both Prosper.com and Lending Club must both meet the regulatory requirements of each state that they do business in. In addition, Lending Club has a B+ rating from Redwood City’s Better Business Bureau and Prosper has a B+ rating from San Francisco’s better business bureau. You can also read experiences of individuals, such as Matt Jabs from Debt Free Adventure, who borrowed money through Lending Club to consolidate his debt. .

Peer-to-peer lending is a relatively new part of the world of lending, so it’s not a surprise that “lending club scam” and “prosper.com scam” are two of the most commonly searched terms relating to the two largest peer-to-peer lending companies in the United States. It’s natural for people thinking about borrowing money from Prosper or Lending Club to have some concern whether or not they are borrowing from a reputable lender. It’s also expected that investors considering placing money into the world of peer-to-peer lending to wonder whether or not they are signing up for the next great investment scam.

Getting a loan from Prosper or Lending Club isn’t any different than getting a loan from a bank, credit union or finance company. There is the possibility that you could get a much better interest rate with a peer-to-peer lending company .With both companies, you’ll be getting a fixed-rate, fully-amortizing loan, meaning that there’s no hidden balloon payments or variable interest rate hikes with the loans that you are taking out from either company.

If you are considering investing in loans with company, you need to be very diligent before putting money forward. Like all investments, there is risk involved in peer to peer lending. Foremost, there’s risk that the borrowers you lend money to won’t repay their loans. Some of the earliest lenders in Prosper.com did not have a positive experience because there were no boundaries set in place as to who could take out a loan or what interest rates loans could be funded at. Fortunately, both Prosper and Lending Club now place reasonable safeguards in place, such as only providing loans with fixed interest rates and making sure that borrowers meet certain credit requirements, to make sure that investors make a reasonably good rate of return.

If you still have concerns about whether or not Prosper or Lending Club is a scam, continue to research each company. Look up what the Better Business Bureau has to say about each company, look up their corporate registrations and read reviews from people have had direct personal experiences with the world of peer-to-peer lending. Take a look at their statements filed with the SEC as well.