Lending Club as a Debt Consolidation Option

Have you decided it’s finally time to take charge of your finances and work on a plan to get out of debt once and for all? If so, congratulations! The bad news is that it may take a while to dig out of your debt hole, the good news is there are dozens of options available to help you through the process.

Debt Consolidation

One of the options you may be considering is debt consolidation; a process that allows you to consolidate your high interest balances into a lower interest loan. This is a popular method of debt reduction due to the fact that you have only one payment to make versus multiple payments throughout the month. Additionally by consolidating into one lower interest loan more of your payment will be applied toward the principle loan amount, therefore not as much money will be wasted on interest.

Unfortunately in today’s economic climate qualifying for a loan to pay off your high interest debt may be challenging. For people who feel debt consolidation is the right answer for their debt elimination plan, social lending networks might be an option to consider.

Social Lending

Social lending networks such as Lending Club offer peer-to-peer (p2p) lending for individuals who qualify for personal loans. The concept is simple enough, borrowers can apply online for personal loans at a lower rate than offered by more traditional lenders (banks, credit cards). In turn lenders can help borrowers while seeking attractive returns.

How does Lending Club work?

If you are looking to consolidate higher interest loans you can apply online and instantly view the interest rate you qualify for. As part of the loan application you will have to provide your social security number and other identifying information in addition to meeting certain credit qualifications. Qualifying borrowers will have their loan request listed for a two week period in which lenders have the opportunity to select requests to fund. If at the end of the two week period your loan is not funded you can either re-list the loan or accept partial funding if it has been offered. You can see the full application process explained in this Lending Club review.

Lending Club Terms and Fees

The loan amount is set to fully amortize over three years with monthly payments to include principle and interest ranging from 6.69%-19.37%. Once you submit your loan request it will be assigned a Lending Club “grade” which correlates to a predetermined interest rate. As with many other types of loans a borrower can expect to have processing fees (determined by the grade assigned to your loan) as well as unsuccessful or late payment fees if your payment is not honored by your bank or paid late.

Social lending vs Traditional loans

The main difference with peer-to-peer (p2p) lending seems to be the loss of the middle man. When you remove the middle man- traditionally a bank- less money is lost in the transaction to cover the profit for the financial institution. While there are some processing fees involved both the borrower and lender can benefit financially by using this system.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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