Public Perception
What does the public get most wrong about Lending Club? The main misconception is to associate Lending Club with Prosper.com. Prosper first defined the P2P lending category, but Lending Club entered the market with different credit standards than Prosper.com was using.
The public is also learning that peer to peer lending is not a choice of last-resort. It can be more attractive than going through traditional lenders.
Responsible Lending
As the financial crisis evolved, lenders came under increased scrutiny for irresponsible lending. Lending Club views itself as a responsible lender for the following reasons:
- Loans are fixed-rate fully amortizing loans
- You know what to expect - 36 monthly payments of principal and interest
- They can’t do what credit card companies have done (raise rates and change terms with little notice)
Comparison to Banks
Some argue that peer to peer lenders serve the same exact same function as a bank, and the concept is all "spin" and marketing. Laplanche says that Lending Club is a thinner intermediary than most banks. He claims that banks need a much larger spread between what they pay on deposits vs. interest rates they charge (on home loans, credit cards, etc). The higher overhead and marketing costs (think of branch locations and all the credit card solicitations you’ve seen in the mail) mean that banks have to collect more from borrowers.
Lending Club vs. Prosper.com
Laplanche says the borrower experience is better at Lending Club than at Prosper.com. Borrowers know up front what their rate will be, and they know (with 90% certainty) whether or not their loan will get funded. At Prosper.com, your loan may or may not get funded - it just depends whether or not lenders bid on your loan - and your rate is determined by bidders.
Lending Club is different from Prosper.com because they use a filter. When you apply for a loan, they pull your credit and let you know what the rate is. If you’re not a good fit, they let you know up front and you can start looking elsewhere.
Looking to the Future
Lending Club hopes to continue offering good loans to good borrowers. Going forward, they expect to expand product offerings beyond just the 3 year loan. You may see loans for different terms and loans tied to collateral such as auto loans.
Current Demand
Currently Lending Club has more demand from borrowers than lenders. As a result of the credit crunch, even borrowers with good credit have a harder time getting loans from banks. They’ve turned to Lending Club and found unsecured loans at 8-10% rates.
