Consolidating with the Club
Over a decade ago, I took out a debt consolidation loan. Chase, an incarnation of Chase Manhattan Bank, sent me a large check and a payment book. I paid off my credit cards, never missed a payment and retired the loan on time in a few years. I swore to never run up credit debt again.
Then we bought a little house. We repaired water damage. We gutted the homasote wallboard to add insulation and gypsum board. We put in a new kitchen. We paid a roofer put on new shingles. We gutted and renovated the bathroom. We raised some ceilings. We enclosed two porches with windows. We paid cash when we could, but charged a lot of materials on home store and credit cards. We even bought a low mileage used car from a little old lady.
The idea behind consolidation loans is that credit card lenders are charging such high rates that borrowers can save a great deal with a single lower interest loan. Sometimes lenders require your house as collateral; other times not. I’ve written about getting a lot of dubious debt management offers – Embrace, American Debt Mediators, Credit Card Hardship Programs – so I didn’t pay attention to the Lending Club solicitation right away.
Lending Club advertises that high credit card rates lead to opportunities for careful investors to make what are essentially microloans to people that are perfectly capable of paying back a personal loan. They offer to remove the middlemen and to match willing investors with responsible borrowers, while collecting an origination fee.
Lending Club is registered with the SEC, and has been reviewed positively by The Economist, Forbes, CNBC and Fast Company. It won the World Economic Forum 2012 Technology Pioneer Award. I had gotten a mailer from them some time ago, and finally had the time to look into it. My wife was away caring for her mother, and sounded dubious when I told her I was going to apply.
I opened the site. Even though my pre-approval code supposedly expired, I was able to use it to create an account. Applying for the loan was relatively simple. I had a few qualms when I read that I may have to accept an offered loan of only 60% of the requested amount. Lending Club wasn’t very clear about whether the origination fee would be proportionally reduced, but I went forward anyway. They wanted a W2, my two latest pay stubs, phone numbers, and bank information. Despite all the bona fides, it still felt odd to be uploading private data to the cloud. I had no idea how much of my information was available to potential investors, but later loan documents claimed that they weren’t sharing personal info.
LC’s teaser rate was a very low 6.78% APR, but their offer to me was more like 13% to the investors, increased to almost 16% to pay LC’s origination fee. That APR was much lower than the home store card, and about the same as another card, but higher than my third card. As it turned out, our washer died soon after I applied, so we took out a new store card to save money on new front-loading washer and dryer, and the APR on that store card was also higher than the LC APR.
A few minutes after submitting, I saw that about four parties had already applied to invest about $500. An hour-and-a-half later I succumbed to curiosity, got out of bed and found that my loan was 62% funded with 59 investors. By the next morning, it was up to 98% funded with 142 investors – many from California. I still had pdfs to submit, and was supposed to call an 888 number and answer a few test questions to verify my phone number.
I had a flurry of emails from Lending Club, congratulating me on being 60% funded, 90% funded and 100% funded. My wife called to make sure I read all these frustrated reviews at Credit Karma. Many of these people were simply upset that they hadn’t gotten the loans after being preapproved and fully funded by interested investors. Unfortunately companies mislead quite a bit in their marketing, so being preapproved in a solicitation letter means almost nothing. Being fully funded by interested investors made me feel good, but according to several commenters wasn’t enough to close the deal.
At Credit Karma, the ratings ran 52% five star and 26% one star, which seemed to be to be a split between those that got loans, and those that didn’t. The only comment that worried me was from a fellow who claimed that he was notified of being approved, “My LC account summary showed funds issued with a transaction code, payment amount and due date,” but after calling, found that he had been quietly rescinded:
… Over the last several weeks I have kept an eye on my LC account summary, all still reflects an issued loan with a payment due in mid April. Now almost 30 days later I received an email from LC reminding me that my payment was scheduled to come out of my checking account. CRAZY!!! I called LC and they apologized and told me some line, but that it would be corrected and not report as a missed payment on my credit report. I must say I am not so confident that this will not be a later battle!!!
LC emailed to remind me to submit more information ASAP. I uploaded a few pdfs and called the 888 number. The fellow that answered tried to trip me up with questions, but I must have given the answers he wanted. By the next afternoon I was approved with all documents submitted. Then Lending Club went silent. I’m glad I had read all those reviews because they made it clear that you can wait a lot longer than the, “as little as five days” in the solicitation letter.
After a day or two, LC deposited to and withdrew a small amount from my checking account. LC prefers to take the payments on their schedule, and charges extra fees if you want to send checks on your schedule. A week after I applied, I got an email saying that my loan was funded, and would be deposited in 2-4 days.
A day later the deposit appeared, but took several days to process. We’re probably all familiar with the scams in which the mark is led to believe that a deposit has cleared and foolishly sends their own money to the scammer via Western Union or Wells Fargo. I was glad to wait until the bank was satisfied that the funds were real, then scheduled full payoffs of my three high interest accounts, and a healthy payment towards my low interest card, all of which also took several days to process,
So far it has been a success story, but we have had to resist the feeling that all of a sudden we have a lot of money to spend. With LC withdrawing their payments on the same day as rent and mortgage, we have to be extra careful about account balances.