Consumers are increasingly looking to peer-to-peer lending sites such as Lending Club as credit card companies raise their interest rate, but why does Lending Club turn away 90% of people that apply to borrow money from the site?
In a recent conference call with investors, Lending Club provided their investors with news about the company and provided some suggestions for them to maximize their rates. Lending club emphasized all of the different things that they did to ensure that borrowers repay their loans and investors get a high rate of return.
Lending Club outlined their collections practices and prescreening process to make sure only that lenders that would repay their loans could borrow from the site, and it turns out that 90% of borrowers that apply are turned away from the website. Many of the borrowers that apply for credit on the site do not meet minimum credit score requirements or other requirements and are told to look for a loan somewhere else.
Borrowers from Lending Club can be turned down for many different reasons. Some never complete the loan application, others fail to provide appropriate documentation, and some can’t demonstrate that they will actually be able to pay off the loan. Others have demonstrated they do not have a history of repaying loans (via means of low credit scores) and are turned away for that reason. Lending Club only allows the “best of breed” borrowers to borrow money, so 90% of borrowers are turned away.
With Lending Club, the focus is definitely on the investor. It caters to investors who are well aware of the issues in the peer-to-peer loan industry and has attempted to those problems. Lending Club has done an effective job of prescreening their borrowers so that lenders get an excellent rate of return. In fact, Lending Club investors have received an average rate of return of 9.7% since the company’s inception in June of 2007.
