LendingClub Expands Program to Help Borrowers Actually Pay Off Debt

One of the most powerful things about getting an online personal loan is being able to get out of high interest debt like credit card debt. Debt consolidation is one of the primary use cases for loans through platforms like LendingClub, but the benefits of a lower rate personal loan are only realized if the borrower actually uses it to pay off the higher interest debt. This is one of the things that first got me excited about the online lending industry. When used correctly, it is truly a win-win relationship for the lender and borrower.

For this reason I had always been interested in LendingClub’s direct payoff feature which has been mentioned a few times over the last few years by the company. Today, LendingClub officially announced the expansion of that program which allows for debt payoff as part of the loan process. They are now calling it a balance transfer loan and consumers are able to share their account information as well as the amount that they want to pay down on the account. LendingClub then makes sure that the loan is applied directly to the debt and if any remains, it is deposited into a bank account.

LendingClub shared a few stats on borrowers who choose this method:

  • Save an average of nearly $900 over the course of their loan
  • Cut their credit card interest rate nearly in half
  • Increase their credit score in just three months

The product has been tested for over a year and LendingClub is working with a partner network of over 1,700 credit card, bank and loan companies to make the process seamless. What’s interesting is borrowers can add up to 12 creditors per loan which is an important feature since borrowers often hold balances across many cards.

While the balance transfer loan isn’t a revolutionary idea, the reality is that no other lenders are offering this feature in this way. Balance transfer credit card offers have existed for quite some time, but these offerings typically come with an introductory offer which can result in the borrower simply extending the length of time they hold the debt. Moreover, once the introductory offer expires the borrower is still left with high interest debt, simply on a different card assuming they didn’t make extra payments. Going forward I wouldn’t be surprised to see other personal loan providers implement a similar feature.

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marc schoenfeld
marc schoenfeld
Jun. 20, 2019 12:23 am

Problem with the “increase their credit score in 3 months” is then LC offers them a refinance deal and no more loan for you (investor) and need to reinvest until you get the defaulter. LC must share the origination fee to mitigate this detrimental prepayment effect to investors. But I like the fact that this ensures the funds are going to the stated purpose which has the feeling of reducing risk.

Mo
Mo
Jun. 21, 2019 5:12 pm

Why not make the direct transfer mandatory to all those credit card and lenders that accept such actions? If I take a home construction loan, the bank pays the builder directly.

Peter Renton
Admin
Peter Renton
Jul. 24, 2019 2:58 pm
Reply to  Mo

I like that idea. In fact, I think this may be the first step in that direction. If you say it is for debt consolidation we should make sure this debt is paid off.

P
P
Jul. 14, 2019 9:41 pm

Lending Club is a failed investment model. They make it hard to get your money out whether you have a regular or a retirement account. Also, keep in mind any profits are taxed as ordinary income. Same profits from stocks, bonds, options would be taxed probably much lower and you’d have much more flexibility to get out whenever you’d like. Lately, they have been accused by federal agencies of deceiving customers and using predatory loan practices. They also seem to be freezing customers’ accounts unless they answer a lot of personal questions about when, where, how they use their app and website, their citizenship, their travel abroad, etc. Shady businesses! Get out before they go bankrupt and you lose all your money and privacy!

Peter Renton
Admin
Peter Renton
Jul. 24, 2019 3:02 pm
Reply to  P

I have known and done business with LendingClub for more than a decade. They are not a shady business. Yes, they have made mistakes and have paid fines because of these mistakes but you are making some pretty strong claims here without any evidence. I have not heard of any cases of LendingClub freezing customer accounts unnecessarily.

And for the record, LendingClub interest is taxed as ordinary income as is the case with most bonds. Stocks and sometimes options get taxed at capital gains rates.