Are Lending Clubs Right for You?

With credit tight, and consumers and businesses looking for some cash leverage, lending clubs – social networks that connect investors and borrowers – are becoming increasingly prominent. Here’s the straight skinny on peer-to-peer lenders, along with a blueprint on how to get a decent loan out of one.

OK, so what’s peer-to-peer lending? Basically, it involves membership-based clubs, stocked with supposedly eager lenders who are willing to make loans to borrowers for a decent return on their “investment”.

The market is dominated by online peer-to-peer lending sites like Lending Club and that match individual borrowers to individual lenders – typically for loan deals that are only a few thousand dollars, presumably below the attention span – or level of interest – for banks.

Here’s a description of how social lending Web sites work (from

  • “Social lending networks bring together investors and creditworthy borrowers to offer value beyond traditional banks.”
  • “Borrowers with good credit can get personal loans from $1,000 to $25,000 at interest rates that are often significantly
  • better than rates from conventional sources.”
  • “For lenders, money invested goes immediately to the lending network’s approved borrower members. Most lender members spread their investment across tens or hundreds of qualified borrowers. Notes (that correspond to specific borrower loans) are offered only by means of a prospectus.”

Borrowers must have decent credit – the 640-and-up credit score at seems to be at the low-end while the average Lending Club borrower has an average credit score of 713 – and lenders usually garner better-than-market rate yields on their loans (9% annual returns are not uncommon for peer-to-peer investors).

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