4 Types of Lending Club Loans I Can’t Believe Get Funded

by Kevin on February 18, 2014

I recently reviewed my Lending Club results and talked about investing in peer-to-peer lending. Every month as I go through potential loans to buy off of the loan marketplace I am amazed at some of the options available.

Tennessee doesn’t allow me to directly fund loans through Lending Club. Instead I use the loan marketplace to buy loans with 0% markup. When I look at loans, I’m buying a piece of an already funded loan. This means I see a lot of pieces and a wide range of fully funded loans that are in the middle of repayment.

It never ceases to amaze me. There are loans funded that just make me scratch my head.

4 Lending Club Loans I Would Never Fund

Here are a few types I can’t believe get funded.

Loans Without an Employer Listed

If I’m going to let you borrow my money to pay off your credit card bill I expect you to return the money, with interest, over the next 3 or 5 years. Yet every so often I come across loans that have income listed but no employer information.

I wouldn’t touch that loan with a 10 foot pole. I feel icky just looking at it as a potential option.

It’s plausible the person that asked for the loan originally actually has the stated level of income. But without verification, and not even putting in the employer, I’m not interested. Stated income loans are what got the United States housing market in trouble. I don’t want that trouble in my peer-to-peer lending portfolio.

Loans With Multiple Recent Delinquencies

Lending Club pulls a borrower’s credit report and shows potential investors how many delinquencies the person has as well as how many months ago that delinquency was. A delinquency is a missed or late payment on a credit account. It could be 1 day, it could be 30 days. Having multiple delinquencies is a major red flag to me. You’ve been unable to pay your bills in the past and want me to trust that you’ll pay my bill? No thanks.

Loans with Public Records on File

Another piece of data Lending Club provides is the number of public records on file. This is pulled from the credit report, so don’t confuse it with criminal public records. Credit report public records are things like bankruptcy, foreclosure, tax liens, and past-due child support.

To me this is another indicator of not being able to manage your finances, and I’m not interested. Granted anyone needing a peer-to-peer lending loan has mismanaged their finances, but this takes it to another level that I’m not interested in.

Loans With Zero Detail

My favorite loans to invest in are those where the borrower explains what they need the loan for. It doesn’t have to be crazy detailed, but showing some interaction with the investor community is a great sign of a level-headed borrower. Simple things like explaining what your current debt balances, interest rates, and minimum payments are so investors can see how the loan makes sense is a great step. (For example, you have a total minimum payment of $300 on your credit cards and this loan wipes out your balances while giving you a $250 monthly payment. That’s a win-win.)

The opposite is also true: if you only title your loan “Debt consolidation” with no other detail, I’m leery. I might still consider the loan if it has other strong points such as a good credit score and verified income, but leaving out detail is shocking to me.

Comments on this entry are closed.