After the 2008 financial crisis a way of lending that is going against the status quo of Wall Street institutions has become more popular. Peer-to-peer (P2P) lending is a form of lending that bypasses banking institutions. P2P lending allows individuals to both borrow and lend money without a bank. This method essentially takes out the middlemen in the debt financing industry, however it comes with its own burdens. The reason that many people are flocking to P2P lending is that it provides advantages for both the borrower and the lender. This method allows borrowers to receive loans that they may not have received from a standard bank. P2P lending also allows lenders to earn income through interest that often generates more interest than other …show more content…
Lending Club has used technology to create and operate a credit marketplace at a cost that is lower than what banks offer. Lending Club passes these cost savings on to borrowers by offering lower rates, and to lenders by providing consistent solid returns (Lending Club, “Innovation transforms lending”). Lending Club allows individuals to borrow and lend money through a simple manner. Borrowers who are interested in a loan complete a simple application at LendingClub.com. After this application is completed Lending Club then uses their technology and online data to quickly asses the risk of the borrower. Lending Club has seven different grades to classify borrowers. These grades go from A to G, and under each grade there are five sub grades. In total there are 35 different loan grades going from A1 to G5. The most important factor in grading a borrower is their credit history. Borrowers with good credit history will receive better grade loans that come with lower interest rates (Lend Academy, “Lending Club Review for New Investors”). Once this application and grading process are complete Lending Club assigns an interest rate that corresponds with the borrowers’ grade. This system rewards borrowers with good credit ratings by giving them low interest rates, while also allowing borrowers with bad credit rating to receive loans albeit with higher interest rates. Borrowers who qualify for loans quickly receive offers, and are still able to assess loan options with no bearing on their credit score. On the other side of the P2P lending relationship lies the investors. Lending Club makes it simple for investors to get started, all they have to do is create an account and then transfer funds into it. From this point lenders are able to select which loans they want to invest in (Lending Club, “Innovation transforms lending”). The loan grades that