Using Lending Club Personal Loans For Debt Consolidation

If you are like many struggling American families, then you have probably considered taking out peer to peer personal loans from companies like Lending Club to consolidate your debts. Debt consolidation via personal loans often seems like a suitable solution to many individuals, but it is important to understand what you are likely to pay and the potential downsides of the loan. Making an educated decision about your debt relief solutions requires an understanding of all the potential problems that might arise.

Basic Information About Lending Club Loans:

Lending Club is a peer to peer lending solution. As a result, the lender is an investor or group of investors who are willing to offer funds to men and women who are unable to obtain traditional funding or who want to work with an individual rather than a lending institution.

Lending Club uses underwriting to determine the risk that borrowers present to the investors. As a result, many individuals are either denied loans or are offered high interest personal loans that help counter the supposed risk of default that the investors might face. This means that if you want to consolidate your high interest unsecured debts with a loan from Lending Club, you can expect that you will end up with a potentially high interest rate despite the requested interest rate you make.

The way that Lending Club determines the interest rate that is most suitable for your situation is via your FICO score, the current debt to income ratio, the length of time you need to pay the loan, and the amount you are trying to take out. When you make a request for a loan, you are able to state the amount you would prefer to pay in interest. Unfortunately, you are not guaranteed to receive the interest rate you request.

APR Interest Facts and Other Fees:

Since the interest rate is often determined by the risk underwriters in Lending Club suggest an individual is likely to provide, you need to understand the rating system and how it impacts a personal loan for consolidation.

If you are struggling with your minimum payments and need a consolidation loan or service, you have probably faced missed or late payments on your account. As a result, your FICO score is impacted by the struggles you are facing. Underwriters will issue a grade from A to G and then further categorize your risk from one to five within that grade.

A classification of A1 will end up with the best loan interest rates and origination fees while a classification of G5 will result in the highest interest. If the risk does not fall into any of the loan classification standards, you will find that the loan is denied.

After the reduction to your FICO score and the credit history that shows recent missed or late payments, you can expect to fall somewhere in C to G rating categories, depending on your particular credit information. This means that you should expect to have loan interest rate offers between 14 and 25 percent.

Beyond the interest rate, you are also required to pay an origination fee with your new personal loan. The origination fee for categories C to G are roughly 5 percent of the loan amount. This adds to the cost and can bring the total interest and charges to as much as 28 percent on your loan.

Consolidation Without Loans:

While Lending Club might have plenty of promise as a peer to peer lending solution, you do not need to take out a high interest personal loan to consolidate debts. The high interest you are likely to pay for the personal loan through Lending Club will not help your situation. If the interest rate does not decrease from your original unsecured loans, it is not enough to make your monthly payments low enough to manage.

Consolidation does not necessarily mean taking out a loan. Consolidation services from a debt relief company work through negotiation instead of providing loans. This type of service does not require that you have excellent credit or show a low risk of default. Instead, it requires that you are willing to work on completely paying off your loans.

Negotiation discusses the problem with current lenders and will put your current revolving accounts on hold. This helps prevent a debt trap that is commonly associated with taking out a loan to pay the other debts. During the process, the negotiator will discuss the possibility of settling the account for a lower principal so that you save as much as possible and are able to pay off your debt within two to four years.

Lending Club may not be the best solution for debt consolidation because of the high rates and potential for denial. If you want to consolidate or settle your debts, fill out the form on now or call us for a free debt analysis.