The Washington Post profiled a borrower who reduced her monthly credit card payments from $450 to $301 by consolidating them in a loan through Lending Club .
Some people, such as Phyllis Wright, 48, are just looking for a way out of debt. The customer-services representative who lives in Clinton borrowed $9,000 from the Lending Club to pay off some of her credit cards. "I knew that I had so much debt that I didn't even bother to try to get a loan from the bank because I knew I would have been turned down," she said.
She got a 12 percent interest rate, much lower than the rate she had on her credit cards. She had been paying her credit cards about $450 a month. Now she pays Lending Club $301. She still has credit card debt, but "that was a big help," she said.
Since September, when the Lending Club expanded from a Facebook group to a public Web site, it has issued about $9.5 million in loans, said Renaud Laplanche, founder and chief executive. Last month alone, it doled out about $3 million. Laplanche attributed the rapid growth to the credit crunch that has squeezed the mortgage market and seeped into other forms of lending.
Laplanche said borrowers must have a minimum 640 credit score, no more than a 30 percent debt-to-income ratio and no delinquencies. To minimize risk, lenders make small loans to each person. That way, if one recipient defaults, lenders are still likely to get a return from their investments in other people's loans. So far, Laplanche said, fewer than 1 percent of all loans have been in default.
"People tend to not default on other people in a community if they feel connected," he said.