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:
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.
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.
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.