What is a Lending Club and How Does it Work?

What is a lending club

Lending club also refers as lending circle is network of people who borrow money from each other on a rotating basis.  Typically, it is interest-free or extremely low. Think of friends or family members helping you out with money. Yet, The money needs to be paid back. Consequently, each member pays the loan back on a rotation base. The loan is interest-free and can sometimes represent a very good amount. Specifically, when the circle is very strong. As a result, it helps their members buy cars, make down payment for a house or completely pay for the house, pay tuition fees, and run businesses. In brief to reach their financial goals. It comes in very handy especially if you have credit score issues. Or if you run a capital intense business.



Lending clubs build financial inclusiveness and foster economic empowerment. In addition, they are thriving among immigrant communities. That is because generally those communities typically find themselves shot out from the traditional social system. However, because the model is entirely based on trust, members are carefully vetted and in some cases, you must be co-sponsored or referred by an already member to join.

When to join a lending club?

Typically, before you join a lending club, numerous steps have to be done.

  •  Have a goal: This is probably the most important aspect of the lending club. As a new member, they want to know what your goals are. You can join to help you buy a house, a car or to prepare for a vacation.
  • Members of the lending club: Never join a lending club if you don’t know anybody. Exceptionally you can pass through an agency. But make sure you trust and know each member very well. That is because you are building a strong community and relationship. If necessary do a thorough background check without any complaisance.
  •  How much is the minimum periodic contribution: The minimum period contribution is the amount of money you are supposed to contribute to every meeting.
  • Find out how many people: You need to know how many people are in the circle and appreciate the extent of your engagement.
  • The meeting period: This information is critical because it is associated with your commitment. Indeed at every meeting, you have to contribute the minimum amount required, be present. Also if you are the host depending on the type of program you might have to host all members.
  • Rules and regulations: it is important to read, understand, and appropriate yourself with all the rules and regulations that govern the circle and how do you fit in?
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Advantages of Lending circle:

  • Build wealth: Lending circles are not exclusively for people with no access to financial services.  In fact, most successful businessmen and women are all part of a Trusted lending circle.
  • Raising fund: The programs are a great way to raise zero interest rate fund hassle-free. Lending circles collect and lend from a hundred to thousands per day.
  • Empower communities: They help build, rebuild, and improve communities because all members have the same motive and nobody is left behind.
  • Financial inclusion: The service provides banking services to people often shut out of the financial system because of bad credit or no credit. In addition, the program helps improves their credit score by reporting to the 3 major credit bureaus.

Inconvenient of a lending circle:

Like any venture, it comes with some drawbacks.

  • Lost of your money: if you happen to join a program with people who are not trustworthy. Everything you put in can be lost. You might lose a really big amount of money.
  • Untrustworthy people: depending on the power of the circle, people can really bring you a lot of trouble. Because you are essentially inviting them to your house.

How it works

  • Lending Club is formed between a group of trusted people with a track record of good money habits and a clear vision for their lives. The number is not set stone and it depends on the members.
  • The loan amount also depends on the members, there is no minimum amount. The members decide based on the quality of the members and the prior agreement. Therefore, it can be weekly, daily, monthly.
  • There is a designated person that acts as the keeper. The person’s job is to make sure everybody stays on track and keeps up with its engagement.
  • Normally, serious lending clubs only recruits by co-optation.

Case study:

  • Number of members: 4 people
  • Profile: all family members and relatives
  • Amount: $500 every month
  • Circle: Every 4 months a specific person goes with $1500  that is $6000 per year. That is a loan giving away at 0%.

Lending club vs LendingClub

Actually, if you don’t feel comfortable forming a club with people you know and trust; you can always join the Lendingclub. Actually, the fintech marketplace works exactly as described except at scale powered by technology.

Is the LendingClub legitimate?

Lending Club is a full circle and legitimate fintech marketplace bank that completely disrupted the banking industry. The service is currently servicing by 3 million + members.

What credit score do you need for LendingClub?

However, to join the LendingClub, you will need to satisfy a basic requirement. Indeed, a credit score of 600 is required for any new member.

Does LendingClub require collateral?

According, to the company’s website there is not need for any collateral for most personal loans. However, if your credit score is poor, you might to be asked to get a collateral should you want to get a personal loan through the LendingClub.


Does LendingClub do a hard pull?

Normally, the Lending Club does a soft inquiry when applying to join the marketplace. Nevertheless, the company does a hard inquiry once your loan is approved.

Does LendingClub require proof of income?

Normally, The LendingClub does demand a proof of income. Nonetheless, your debt to ration,your credit history and your credit score will affect your loan. In addition, those elements may an important role when estimating your interest rate.

Does LendingClub contact your employer?

The company usually contacts your employer for clarification. The scope usually covers your pay stub, number of years of full employment, and type of job.

How long does it take LendingClub to verify documents?

It typically takes 2 to 3 business days. That is after you send in all required documents.

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