Interest Rate vs. APR: It Pays to Know the Difference

It’s surprising that with 364 million open credit card accounts in the U.S., many American consumers don’t understand the difference between interest rate vs. APR. Considering credit card debt continues to climb, it’s more important than ever to understand the true cost of borrowing money.

Interest Rate vs. APR

Understanding the difference between APR and interest rate starts with knowing what each term means.

What is an interest rate?

When you take out a loan or credit card, the interest rate is the percentage of your outstanding balance which you pay to borrow the money. It’s a flat percentage that can change based on a creditor’s terms, the type of loan, and repayment behavior.

What is an APR?

In the most basic sense, your APR—or annual percentage rate—is the total amount it will cost you to borrow money and measures the true cost of a loan. Beyond the simple interest rate attached to your loan or credit card, APR also includes other financing fees which are converted into a total yearly cost and broken down into a monthly expense. These can include origination fees, points fees, and closing fees among other things.

Because APR bundles the simple annual interest rate and other financing fees, knowing how it works will better help you understand the true cost of borrowing money. It’s also a useful comparison tool when determining the type of loan or credit card that makes the most sense for your financial circumstances. Janet Berry-Johnson of Credit Karma urges borrowers to consider this key question when comparing new credit card options: What is a good APR to pay?

In its Credit Card Landscape Report, WalletHub reported that average APRs on new credit card accounts in the second quarter of 2018 were at 19.05%. Meanwhile, the average APR for existing accounts was much lower at 13.08%.

Types of APR Defined

Annual percentage rates will vary depending on the type of loan and the financial institution or credit card company you’re using.

Home Mortgages and Personal Loans

Home mortgage and personal loan APRs include lender fees, closing costs and more. While these fees are unlikely to change, the simple interest rates definitely can if the fees aren’t fixed.

According to Investopedia, “A fixed APR loan has an interest rate that is guaranteed not to change during the life of the loan or credit facility. A variable APR loan has an interest rate that may change at any time.” A good APR for one person, may not be right for another. It’s important to explore different loans and the APRs associated with them so you can choose the best option for your situation.

Common fees added on top of the simple interest rate on a home mortgage loan include:

  • Origination fee
  • Tax service fee
  • Underwriting fee
  • Document preparation fee
  • Wire transfer fee
  • Office administration fee
  • Broker’s fee

Credit Card APR

In the credit card world, the type of APR you pay will depend on how you use your card. They include:

  • Introductory APR
  • This short-term, low or zero percent APR is used to incentivize people to apply for a new card. These promotional rates usually last a minimum of six months and can extend for as long as 24 months. At the end of the introductory period, the APR will increase. It can also go up early due to missed or late payments.

  • Balance Transfer APR
  • If you plan on using one card to pay off another, you’ll likely have to pay a balance transfer fee and a special APR that will only impact the amount of money transferred.

  • Purchase APR
  • As its name suggests, this APR applies to purchases you make with your card. When you pay off the full balance each month, you can avoid paying interest altogether.

  • Cash Advance APR
  • When you use your credit card to withdraw cash from an ATM, the amount will be subject to a separate cash advance APR. This rate is usually higher than a purchase APR. As soon as you withdraw cash, you will begin paying interest on the amount.

  • Penalty APR
  • When you fall behind on payments for 60 days or more, your credit card company will charge a penalty rate that is higher than any other form of APR. According to Experian, the average penalty APR for credit cards hovers right around 30%.

Certain fees are based on your behavior as a borrower and often are not included in your initial APR for credit cards, such as:

  • Annual fee
  • Balance transfer fee
  • Cash advance fee
  • Foreign transaction fee
  • Late payment fee
  • Over limit fee
  • Returned payment fee

These types of fees should be outlined in your cardholder agreement so make sure to read it closely before you sign. Staying proactive about making on-time payments, not overspending, and increasing your credit score will all help keep your APR low.

What APR Should You Expect to Pay?

It’s important to keep in mind that the higher your credit score is, the lower your APR and interest rate on a loan. Before filling out an application, check out what a good APR for a personal loan is based on what you currently qualify for.

At LendingClub we like to keep it simple: your APR on a personal loan through us will include a one-time origination fee plus the interest on the loan itself. That’s it. No application fees, no prepayment fees, no surprises. Checking your rate to see what you could qualify for is fast, free, and won’t impact your credit score.*

As a borrower, you should also know that you’re protected against inaccurate and unfair credit card and billing practices under the Truth in Lending Act (TILA). Before a lender or credit card company can charge you any interest or fees, they’re required by law to disclose all actual and potential charges, fees, and rates associated with the loan.

Whatever type of loan or line of credit you need, be sure to compare your options and the true costs associated with the borrowed amount. When it comes to borrowing money, it pays to do your homework.

*Checking your rate generates a soft credit inquiry, which is visible only to you. A hard credit inquiry that may affect your credit score only appears when your loan is issued.

The post Interest Rate vs. APR: It Pays to Know the Difference appeared first on LendingClub Blog.

Source: lendingclub.com

Our Simple Guide to the Types of Loans Available

It can often seem like having an advanced degree in financial jargon is a requirement to understanding the types of loans available to you. Open-ended loans, variable-rate mortgages, unsecured debt…the list goes on and on. But what does it all mean?

If you’re feeling overwhelmed by the complicated world of loan lingo, this easy guide will help get you crystal clear on your credit options in no time.

Closed-ended loans vs. open-ended loans

A closed-ended loan is a one-time debt that you incur for a set amount which you agree to repay according to predetermined payment terms. Examples include mortgages, personal loans, and auto loans.

Here’s how it works: You borrow a fixed sum of money—say, $10,000—to buy a new car. The terms of the loan dictate that you have 36 months to repay the loan in full according to a provided payment schedule. Once you pay up, the loan is closed. If you want to buy another car on credit at a later debt, you’ll have to secure another car loan.

An open-ended loan is a revolving form of credit that allows you to borrow from a predetermined credit limit. Common examples include credit cards and home equity lines of credit (HELOCs).

Here’s how it works: Suppose your credit card offers a $5,000 credit limit. In one month, you charge $1,000, reducing your available credit to $4,000. If you pay off the balance in full, you’ll again have access to the full $5,000 limit. If you pay just the minimum owed, you’ll have less credit available to you, and you will owe interest on the outstanding balance. Your card remains open—regardless of whether you tap into the funds—so long as you or your creditor chooses to leave it as such.

Fixed-rate loans vs. variable-rate loans

A fixed-rate loan guarantees you an interest rate that is… well, fixed. In other words, it stays the same for the duration of your loan. Since your rate never varies, you know exactly how much your monthly payment will be throughout the loan term.

Here’s how it works: You’re buying a home and you choose a 30-year, fixed-rate mortgage to provide the funds you need for closing. Your lender guarantees the interest rate—say, 4.75%—for the full 30 years. As a result, you owe exactly the same amount each month to your lender (the loan repayment plus 4.75% interest) for the next three decades.

A variable-rate loan includes a changing interest rate that’s tied to the movement of interest rates in the market. When rates are dropping, you benefit from a decrease in your loan’s interest due, while an upward shift in the market can mean you wind up paying quite a bit more.

Here’s how it works: When buying your home, you decide on an adjustable-rate mortgage (ARM). The terms of your loan state you’re guaranteed a fixed rate of 4.1% for the first five years, but your APR may be adjusted once every year after that. Depending on some predetermined market index, that rate may go up or down, and the change you see is likely capped by the terms of your contract.

Secured loans vs. unsecured loans

A secured loan is a debt that’s backed by collateral you provide to your creditor. Because that collateral reduces a creditor’s risk, you’ll typically find lower interest rates attached to secured loans than unsecured loans. However, if you don’t meet your payment obligations on a secured loan, the lender is legally entitled to seize the property backing the loan and liquidate it to cover your unpaid financial obligations.

Here’s how it works: You take out a car loan and a home mortgage. You fall behind on payments, so your lender repossesses your car and forecloses on your house. They sell the property, keeping the outstanding balance to cover the debt and returning the remaining amount from the sale to you.

An unsecured loan is a debt that has no collateral backing it. Some examples are credit card debt, student loans, medical bills, and utilities owed. If you don’t repay the loan appropriately, your lender can’t legally seize your belongings. As a result, interest rates tend to be higher for unsecured debt over secured loans.

Here’s how it works: You owe on an outstanding credit card balance on an unsecured debt, but it’s been months since you’ve put anything toward paying back the account. The lender can’t take your home or other property, but your nonpayment is likely destroying your credit score. Additionally, your lender may choose to close your line of credit, send your debt to collections, or even sue you for the amount you owe. (FYI, a legal judgment against you can force you to pay or subject you to wage garnishment until the amount is repaid.)

So, what’s the best type of loan? Well, there’s no one-size-fits-all answer. But now you know how to evaluate your options and understand what each type of loan means for you and your bank account. Armed with this knowledge, you can confidently choose the best loan for your personal situation.

The post Our Simple Guide to the Types of Loans Available appeared first on LendingClub Blog.

Source: lendingclub.com

Marketplace Lending in a Rising Rate Environment

In this issue of Marketplace Insights, we focus on potential impacts to marketplace loans in a rising interest rate environment.

The Impact of Rising Rates

As interest rates march steadily higher, investors are asking how marketplace loans might perform in a different rate environment. Because marketplace loans’ risk and return dynamics are different from those of more traditional fixed income assets, they can offer investors benefits in various environments. This is due to factors including:

  • Differentiation. Marketplace loans’ returns tend to be more affected by credit-specific factors and broader trends in consumer credit health, specifically, unemployment rates and recessions, than by prevailing interest rates.
  • Demand. Marketplace loans are an attractive alternative for borrowers in a variety of rate environments, given the generally higher rates on other consumer credit products.

Read the full Marketplace Insights piece here.

The post Marketplace Lending in a Rising Rate Environment appeared first on LendingClub Blog.

Source: lendingclub.com

5 Tips to Improve Your Credit Score

Your credit score plays an important role in your life that can help put you on the right path toward financial success—or veer you completely off course. From whether or not you can get that apartment to obtaining a lower interest rate on a new car loan, your score affects almost everything you might want or need to get ahead. Having a less than perfect credit score can also mean paying hundreds or even thousands more in interest over time.

Fortunately, there are a variety of easy steps you can take to start building good credit. Here are five easy ways to start improving your credit score today.

  1. Pay bills on time
  2. One of the biggest things that affects your score is a record of timely payments. When you are juggling bills and expenses, it can be easy to lose track and end up missing one, which can negatively impact your credit score.

    To avoid missing payments, set up automatic payments for your recurring bills, like rent, electricity and cable. For other bills that do not occur monthly, such as car insurance, put reminders on your calendar to remind you to pay before the bill is due.

  3. Use less than 30% of your available credit
  4. Another factor credit companies use to determine your score is your credit utilization ratio. This is the amount of credit you use compared to the amount you have available. For example, let’s say you have a credit card with a limit of $10,000, and you have a balance of $3,000. That means your credit utilization is at 30%.

    Use less than 30% of your available credit to keep your score high. If you rack up too much of a balance relative to your limit, your score will go down.

  5. Monitor your credit
  6. There are a variety of services that give you a free credit report, so there’s no excuse to not know your credit score and monitor it. Regularly review your credit report for any errors, such as unauthorized accounts or credit cards that do not belong to you. Erroneous charges can end up bringing down your credit score.

    You can sign up at creditkarma.com to get free access to your credit scores and reports, with weekly updates.

  7. Ask for a credit increase
  8. Because credit utilization plays a big role in your credit score, you can increase your score quickly by asking for a credit line increase. If you are in good standing with your credit card company, meaning you have not missed payments, you can call and ask them to raise your credit limit. With a larger amount of credit available, your score will go up.

    If you do increase your credit limit, it can be tempting to spend a little extra, now that you have more credit available. Don’t fall into that trap! Remember to use 30% or less of your available credit to keep your credit score high.

  9. Consolidate credit card debt
  10. If you have high-interest credit card debt, consider consolidating it with a personal loan. Many customers see their credit scores increase after just a few months of doing this.1 Credit cards are a form of revolving debt, while personal loans are installment debt. Having a variety of different types of debt on your credit report can help boost your score.

    By consolidating, you can also pay off your debt faster while saving money. Borrowers who used a personal loan through LendingClub to consolidate debt or pay off high-interest credit cards reported that their new interest rate was an average of 30%2 lower than what they were paying previously on their outstanding debt or credit cards. Over the length of your repayment term, that means you may save hundreds of dollars.

Building your credit score

Building your credit score can take time, but if you consistently apply these five tips, you can improve your score and take control of your finances. If you’re wondering if a personal loan for debt consolidation is right for you, check your rate today.

1Borrowers who paid their debt down and maintained low balances saw a credit score increase, however, other factors, including increasing debt load, could result in your credit score declining.

2Based on responses from 6,279 borrowers in a survey of 95,998 randomly selected borrowers conducted from 1/1/16 - 12/31/16. Borrowers who received a loan to consolidate existing debt or pay off their credit card balance reported that the interest rate on outstanding debt or credit cards was 20% and average interest rate on loans via LendingClub is 15.1%. The origination fee ranges from 1% to 6% and the average origination fee is 5.44% as of Q4 2016. Best APR is available to borrowers with excellent credit.

The post 5 Tips to Improve Your Credit Score appeared first on LendingClub Blog.

Source: lendingclub.com

Debt Snowball Method: 6 Easy Steps to Decimate Debt

When you’re juggling thousands of dollars of debt, it’s easy to feel like you’re going to drop some balls. Fortunately, the secret to conquering your money could be simpler than you think. If you’re ready to accelerate your journey to a debt-free life and knock out those loans, credit cards, and lines of credit, the debt snowball method just might be your next big act.

How the debt snowball method works

As any kid knows, building a giant snowball means starting with a tiny ball of snow and slowly rolling it along. As you push and roll, your snowball grows larger as it gathers more snow.

The debt snowball method works in the same way. Start by focusing on paying off just a tiny bit of your debt. Then, as you move along, you will start rolling increasingly larger sums of money from one debt to another until you’re tackling your biggest balances with ease—essentially creating a snowball effect on your debt.

How does it work? While a debt calculator can do some of the number-crunching for you, if pencil and paper is more your style, here’s how:

1. List all your outstanding debts.

Write down the name of each loan or credit card, its balance, and the minimum monthly payment you owe. For example, suppose your debts include:

  • A car loan with a $3000 balance and a $350 monthly payment
  • A personal loan with a $700 balance and $125 monthly payment
  • A credit card with a $10,000 balance and a $200 monthly payment

2. Sort your debts from smallest to largest outstanding balance.

Using our example, you would reorder your list like this:

  1. Personal loan with $700 balance—$125 per month
  2. Car loan with $3000 balance—$200 per month
  3. Credit card with $10,000 balance—$350 per month

3. Pay extra toward your smallest debt.

It’s essential that you keep paying your monthly minimums to avoid late fees and dips in your credit score. But, once you’re doing that, take whatever additional debt repayment money you have and put it toward your smallest debt.

Going back to our example, you would keep paying the required minimums of $350 and $200 toward debts two and three, respectively. After making those payments, let’s say you discover an extra $100 on hand to accelerate your debt repayment. So you add that $100 to the $125 monthly minimum you’re already paying toward debt one, your low-balance personal loan.

4. Keep at it until you pay off your smallest debt.

Repeat step three, paying $225 each month toward debt one until your balance hits zero. Since you started the process with a $700 balance, you’ll hit that milestone within just four months. (Take a moment to celebrate your awesome achievement!)

5. Roll your money into your second-smallest debt.

Now that your personal loan debt is a thing of the past, it’s time to focus on debt two, your car loan. Again, keep paying the minimum toward debt three. But now, in addition to the $350 you were already paying toward debt two each month, lump in the $225 you had been putting toward debt one. Now, you’ve snowballed your money and are able to pay a whopping $575 on your car loan every single month.

6. Keep going until your debt is gone.

Repeat the payment structure outlined in step five until debt two is gone. Then, roll your payments once more, and tackle the next debt on your list. Keep at it, paying and rolling money from one debt to the next, until you’ve crossed off every liability on your debt list.

The magic of snowballing debt

The beauty of the debt snowball method lies in its appeal to the scientifically proven way our minds work. If you try to take down your largest debt first, you could easily get discouraged. After all, wiping out a huge debt could take years.

When you start with your smallest debt first, you’re setting yourself up for success by reaching your first debt milestone quickly. When you cross that first loan or credit card off your list, that will build motivation and confidence to help you keep going.

Plus, once you move on to tackling larger debts, you’ve got more money to put toward those outstanding balances. Instead of dividing your money across small and large debts simultaneously, you’re putting as much as you can toward the big ones, since you’ve already wiped out the little debts.

Is the debt snowball the right strategy for you?

Countless people have found success with the debt snowball strategy, but it isn’t the only approach out there. Check out the debt avalanche method, and compare and contrast with the debt snowflake method. Another strategy is converting all your various debts into a single, lower interest personal loan with a loan term that doesn’t extend your repayment period.

What’s important is choosing a debt payoff strategy that inspires you to get debt-free as simply and as inexpensively as you can, while keeping your own budget in mind.

The post Debt Snowball Method: 6 Easy Steps to Decimate Debt appeared first on LendingClub Blog.

Source: lendingclub.com

How to Create a Budget in 5 Simple Steps

While following a budget may sound painful, living according to a financial plan has serious advantages. Of the nearly 40% of Americans who never or rarely pay their credit cards in full each month, most tend to also feel socially isolated and dissatisfied with their personal lives. Taking back control by creating and sticking to a budget not only empowers you to make proactive choices with your money—decimating your debt and living within your means can simply help you feel better about your life.

If you’re ready to master your money, now’s the perfect time to create a budget that’s customized to your needs. And it’s easier than you think. Just follow this five-step plan to build a budget you can actually stick to.

Start with the big picture

When you’re creating a monthly budget, it’s easy to make the mistake of thinking just one month at a time.

The better method? Start by looking at a full year.

Why? Because there’s no such thing as a “typical month.” Some types of income and expenses simply don’t happen every single month. Thinking about your annual company bonus, your summer vacation, or your quarterly insurance payments as part of a year-long financial picture is crucial when budgeting your family’s income.

The best place to start is by putting together an annual budget, and then dividing that by 12 to get a better picture of what your monthly spending should look like.

Take stock of what’s coming in

It’s basic math. You can’t spend what you don’t have without going into debt. Where many families go wrong is by under- or over-estimating their yearly income. It seems obvious but getting a clear picture of exactly how much money you pocket each year is absolutely essential to building a functional financial plan.

Write down every type of income that you can reasonably expect to pocket during the upcoming year. Include not only take-home pay, but all sources of income that come your way—bonuses, commissions, tax refunds, Social Security checks, child support, and more.

For each category, check how much you brought home in the past 12 months, or come up with a solid estimate for the coming year. Add up your income streams to get your true annual take-home income.

List out your must-haves

Life is full of bills that need to be paid. Some of them go toward luxuries (like your cable package or morning coffee runs), but many of your expenses are clear necessities. For this step of the budget-making process, write down each of your non-negotiable costs:

  • Rent or mortgage payments
  • Groceries
  • Basic utilities
  • Childcare or school tuition
  • Insurance premiums
  • Minimum debt payments (credit cards, car loans, etc.)
  • …and others

Some of these costs are fixed, meaning you know exactly how much your rent or car insurance will run you every month. Other amounts may be harder to pin down.

Take a look back over the past 12 months of records to estimate a cost. For example, review your electric bills over the past year to see how much money you spent powering your house—paying special attention given to monthly highs and lows. For undocumented expenses, like your trips to the grocery store, do a look back over the past few weeks to see how much you paid, on average, for food each month.

Feeling stuck? Often, distinguishing between true needs and wants can be a tricky task. If you need some guidance, check out Jean Chatzky’s podcast.

Plan for savings and debt repayment

At this point in a budget, plenty of people think that whatever money is left over after covering their must-haves is money that’s theirs to burn. So, only after spending on their wants, do they think about saving for the future or digging out of debt.

As a result, half of Americans unfortunately spend everything they earn—if not more—and wind up saving exactly zero from one month to the next.

The right approach to building a budget involves a strategy called paying yourself first. When you pay yourself first, you choose to put money toward your goals before you spend it on life’s luxuries.

What types of goals should you think about including in your budget? Some popular objectives include:

  • Building an emergency fund
  • Contributing to a retirement account
  • Saving for your kids’ education costs
  • Getting out of debt faster
  • Purchasing a home
  • Replacing a car
  • Holiday gifts for the kids or a family vacation

What if savings sounds unrealistic? “Almost everyone can save at least 1% of their income,” notes J.D. Roth on his acclaimed blog, Get Rich Slowly. Once you make that adjustment you can slowly increase your rate of savings.

Allocate money for your wants

Once you’ve committed money toward your necessities and your financial goals, you’re free to focus on your discretionary spending—the “nice-to-haves” in life. Give yourself permission to budget for the fun stuff: sports or music lessons for the kids, eating out, a trip to the amusement park, or a new T.V.

But always remember this: The amount of money available to spend on your wants is no more than what’s left after you subtract the cost of your needs and savings from your net income. If you spend more than what you make, you’re setting yourself up to go deeper and deeper into debt every month.

Sure, budgets can seem intimidating at first, but building a plan to support your lifestyle doesn’t have to be complicated. Now that you’ve learned how to create a budget of your own, you can follow these five simple steps to construct a custom plan for your financial success.

The post How to Create a Budget in 5 Simple Steps appeared first on LendingClub Blog.

Source: lendingclub.com

Strengthen Your Credit Muscle at America’s Financial Health Club

“I had just gone through a divorce, and the stress was killing me. I felt sick and tired all the time.”

Christy, a LendingClub member, is one of so many Americans who have been through a difficult life event that breeds high levels of stress, compromising our health.

In tough times, it is easy to put our health on the back burner—financial or otherwise. And when it comes to our finances, if we’re operating at a deficit from the start, we fall further and further behind, often racking up credit card debt with virtually no savings. In fact, 47% of us couldn’t come up with $400 for an emergency. A new CFSI study found 72% of Americans are considered financially unhealthy. Thirty percent say they have an unmanageable amount of debt.

This lack of financial control is less about having access to tools and resources. According to a recent LendingClub survey, it is more about a lack of motivation.

Even Christy, when describing her situation after her divorce told us, “I was just kind of going along, flying by the seat of my pants, and I realized, that’s not getting me anywhere. I needed to take an active role in my financial health.”

This moment of realization is so critical. Unfortunately, it is also so rare.

As a nation, we are finally waking up to what a lack of control over our money has bred—a financial health crisis.

But how can LendingClub help?

There are many ways to tackle a crisis. Other industry leaders like PayPal have shared their mission to democratize financial services, bringing digital banking to the masses.

We turned inward to determine how to address this crisis. The answer was clear: Now is the time to really lean into our name. Although we’ve always been “LendingClub,” it has not been clear what kind of club we intended to be. Until now.

Each day more than 40,000 Americans come to LendingClub looking for help. That’s 15 million visitors per year. We primarily focus on consolidation loans to help set you free from the burden of credit card debt. That’s a good start, because credit card debt is among the least healthy forms of debt. It is the “saturated fat” of debt. Along with consolidation loans, we offer options like Direct Pay so you can seamlessly pay down your credit card debt as part of the borrowing process in exchange for a better rate. Joint Application allows you to apply with a co-borrower and enables us to say “yes” to people who may have otherwise been declined.

Through our innovative loan programs and committed partners, we have helped so many people transform unhealthy debt into healthy debt. What is healthy debt? It is debt that provides a clear path to freedom from high-interest credit card debt and saves you money while helping to build your credit.

So we’re already in the financial health business, and have been for 11 years. But our future will take us far beyond that into what we’re calling America’s Financial Health Club. Because while escaping from unhealthy debt is a great first step, being financially healthy is about far more. A financially healthy life is a continuum, including spending, borrowing, saving, and planning. It is what you get when your day-to-day activities build resilience and put you on a path to success.

Becoming America’s Financial Health Club

Our recent survey found that while most Americans want to improve their financial lives, doing so is mentally draining and therefore gets placed on the back burner.

What’s more, there is an element of secret shame around debt, especially when more of us are willing to share relationship issues than credit card debt concerns with each other. This type of shame is so common, and unique in comparison to, say, society’s expectations around weight and weight loss—aspects about ourselves that can be visually apparent. But a person can be financially unhealthy, and their family, friends, and social networks may be none-the-wiser.

To help combat these issues, we’ve built a Club membership to put you on a sustainable path to financial health. The first step in joining is making a commitment. That can be taking the crucial first step to attacking high-interest credit card debt, or even just taking a good, honest look at your financial life starting with a financial health checkup. Because awareness is the first step to a healthy financial life.

Just as companies like Nike and Apple have partnered to optimize and digitize your fitness goals, we also partner with familiar names, like Intuit, so you can easily import your TurboTax data into your loan application to simplify the process (coming late 2018). We also launched a pilot program with Credit Karma where you can see pre-approved offers from LendingClub and shop for credit with more certainty.

We’re all about providing the tools and encouragement to help our members build financial strength. And by strength, we mean credit. Is “credit” that card in your pocket or that score in your latest credit report? Yes. But at LendingClub, we also view credit as a muscle you can build and flex when you need it.

Just like it takes willpower to get to the health club, it takes willpower and discipline to prioritize your financial health. So, while we can’t do all the work for you—any more than a health club can exercise for you—our mission is to support you every step of the way.

Ready to get started?

As a member, you’ll be joining a community of more than 2.5 million borrowers and our growing force of peer-to-peer investors, currently numbering more than 100,000, some of whom first came to us as borrowers. By becoming LendingClub investors, they are promoting America’s financial health, even as they seek to further improve their own. We believe that with wise choices, your financial health can improve consistently throughout your life no matter where on the continuum you start.

Get started with simple steps you can take to improve your financial health today.

The post Strengthen Your Credit Muscle at America’s Financial Health Club appeared first on LendingClub Blog.

Source: lendingclub.com

Q3 2018 LendingClub Platform Update

LendingClub’s credit marketplace enables borrowers to access capital at competitive rates and investors to earn competitive returns. To ensure equilibrium, adjustments are made in response to investor feedback, marketplace demand, loan performance, and the interest rate environment. In line with that goal, today interest rates are increasing for loan grades A and B, as we continue our efforts to offer investors attractive yields. Overall, portfolio performance continues to be stable versus the prior quarter.

Macroeconomic, credit, and interest rate observations

Economic Backdrop

Equity market volatility spiked in October, leading stocks to give back all their year-to-date gains. The CBOE’s VIX index (a measure of volatility) nearly doubled during October amid concerns about rising interest rates, the stability of corporate earnings, tariffs, economic weakness in China, and uncertainty over Brexit’s impact. Meanwhile, U.S. economic growth remains strong, with the Bureau of Economic Analysis reporting GDP up 3.5% during the third quarter. The unemployment rate fell to 3.7%, reaching a 50 year low, and it continues to grind lower.

Credit Environment

The credit environment appears reasonably healthy, with credit card delinquency rates broadly stable quarter over quarter.1 While there are variations by category, across consumer credit, performance remains consistent with long-term averages.2 Given where we are in the economic cycle combined with the continued supply-side risk we have been discussing for some time, we have seen some unsecured lenders following suit by tightening credit and/or adjusting pricing on the margins.

Interest Rates

The Fed continues along its rate-rising path, implementing another 25-basis point hike (to a target federal funds rate of 2-2.25%) in September. This brings the total number of hikes in 2018 to three. Fed guidance still calls for additional hikes this year and next as it continues to normalize interest rates. In contrast with recent weakness in equity markets, bond markets have so far mostly remained resilient. Despite some short-term jumps, yields on the benchmark 10-year Treasury continued to hover close to 3%.3 While interest rates on consumer credit have risen in tandem with Fed increases, credit card rates in particular have surged, contributing to the strong ongoing consumer demand for our product. By October, average minimum APRs had reached 17%.4

Platform Enhancements

The LendingClub platform makes ongoing enhancements to maintain a balanced marketplace where borrower supply meets investor demand. The platform uses a variety of tools to do this, including interest rates, credit policy, and secondary market sales.

Including changes in grades A and B effective today, interest rates on the platform have been increased four times year-to-date for a total increase of approximately 75 to 109 basis points, depending on grade. (We will continue to monitor the interest rate environment to determine whether future rate increases are advisable.)

In addition, we continue to invest in capabilities that will help us prepare for a variety of economic scenarios. Specifically, we’re enhancing our data infrastructure to enable us to run more tests on the platform as well as to support more efficient decision-making.

Updated Pricing & Return Forecast

Projected returns continue to be stable on a portfolio basis relative to last quarter. The projections below incorporate the impact of new forecasts plus interest rate increases taking effect today for A and B grade loans. Interest rates will be continuously monitored and may be adjusted as the environment changes.

Platform summary and projections as of November 6, 2018

As always, we will continue to keep you informed as things change. Please contact us at [email protected] with any questions you might have.

Safe Harbor Statement
Some of the statements above are “forward-looking statements.” The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “project,” “will,” “would” and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Actual performance of the overall platform has differed from projected performance in the past, and could differ in the future. Factors that could cause actual results to differ materially from those contemplated by these forward statements include: increases to unemployment rates, particularly if such increases are concentrated in populations with a greater propensity to take loans facilitated by our platform; changes to consumer credit behaviors; stagnation or reduction in the growth of the nation’s gross domestic product or uncertainties created by political changes associated with a change in presidential administrations, the Company’s ability to continue to attract and retain new and existing retail and institutional investors; competition; and demand for the types of loans facilitated by the Company and those factors set forth in the section titled “Risk Factors” in the Annual Report on Form 10-K, filed with the SEC. LendingClub may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. LendingClub does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1. Source: Federal Reserve Bank of St. Louis, “Delinquency Rate on Credit Card Loans, All Commercial Banks,” (https://fred.stlouisfed.org/series/DRCCLACBS) 8/24/18.

2. Source: Board of Governors of the Federal Reserve System, “Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks,” (https://www.federalreserve.gov/releases/chargeoff/chgtop100nsa.htm) 8/21/18.

3. Source: Wall Street Journal, 10/31/18.

4. Source: Bankrate Inc.’s “CreditCards.com Weekly Rate Report,” 10/31/18.

5. “Average Interest Rate” is based on weighted average interest rates using the subgrade and maturity mix for issued loans in September 2018.

6. “Projected Charge-Off Rate” so known as Projected Charge-Off Rate, is LendingClub’s projection of the aggregate dollar amount of loan principal charged-off, net of any amounts recovered and accounting for the impact of amounts prepaid, as an annualized percentage of the aggregate dollar amount of loan principal for all loans issued under the Prime Program after November 6, 2018. Projected Charge-Off Rate is not a promise of future results and may not accurately reflect actual charge-off or prepayment rates. Actual charge-off and prepayment rates experienced by any individual portfolio may be impacted by, among other things, the size and diversity of the portfolio, the exposure to any single loan, borrower or group of loans or borrowers, as well as macroeconomic conditions.

7. “Projected Return” is a measure of the estimated annualized return rate on invested principal (meaning for all funds then invested in Notes or loans) using an internal rate of return (IRR) methodology using a monthly term. Monthly cash flow projections are calculated as follows: the scheduled principal and interest payments based on the Interest Rate, minus the amount of such principal and interest payments lost due to the Projected Charge-Off Rate, minus Projected Fees. Monthly IRR figures are annualized by multiplying the monthly IRR figure by 12. Projected Returns are calculated based on grade and maturity mix described in the “Average Interest Rate” disclaimer above. Projected Return is not a promise of future results and may not accurately reflect actual returns. Actual returns experienced by any individual portfolio may be impacted by, among other things, the size and diversity of the portfolio, the exposure to any single Note or loan, borrower or group of Notes, loans or borrowers, as well as macroeconomic conditions. Individual results may vary, and projections are subject to change. The information presented is not intended to be investment advice, guidance, or a guarantee of the performance of any Note or loan. Notes are offered by prospectus filed with the SEC and investors should review the risks and uncertainties described in the prospectus prior to investing. Actual results may be materially worse.

“Interest Rate” is equal to the weighted average stated borrower interest rate for the loan grade or mix of loan grades (whichever is applicable) using the grade and maturity mix described in the “Average Interest Rate” disclaimer.

“Projected Fees” for loan purchasers means the aggregate estimated impact of LendingClub’s then-applicable: servicing fee (1%), collection fee (18%), recovery fee (18%), and an administrative fee (0.10%), each as of the date above.

“Projected Fees” for Note investors means the estimated impact of all applicable fees as well as the impact of interest not earned during the administrative holding period in the first month (2 business days). Applicable fees are LendingClub’s service fee and collections fee (if applicable). LendingClub charges an investor service fee of 1% of the amount of any borrower payments received by the payment due date or during applicable grace periods. The service fee is not an annual fee and may therefore reduce annual investor returns by more or less than 1%. We estimate the collection fee based on expected charge-off rates and the expected number of late payments that will be collected on past due loans with a given grade and term. For more detail on LendingClub fees for Note investors, please click here. Individual results may vary, and projections can change. Past performance is no guarantee of future results.

The post Q3 2018 LendingClub Platform Update appeared first on LendingClub Blog.

Source: lendingclub.com

What is a Good Credit Score vs. a Great Credit Score?

You know you need solid credit to get ahead in life. But what is a good credit score, exactly? Is it 650, 700 a perfect 850? More importantly, is your credit score good enough to qualify for that new set of wheels, kitchen remodel, or new home you’ve been wanting? Knowing what your score is and how it measures up to credit scoring standards is crucial to securing that line of credit, home improvement loan, or mortgage you need to reach your short- and long-term goals.

Whether you are heading to the car dealership, design showroom, or mortgage lender tomorrow or next year, now’s the time to dig into this all-important topic and understand what “good” credit is—and what it means for your future.

What is a Good Credit Score vs. What is a Great Credit Score?

While there are multiple credit scoring systems currently in use, most banks and lenders rely on the FICO score to determine the creditworthiness of a potential borrower.

The FICO score has a set range of 300 to 850 and will vary depending on which of the three major credit bureaus are reporting your score: Equifax, Experian, or TransUnion. Generally speaking, a score between 700 and 749 is usually considered “good” when this scoring range is being used.

For those wondering what is an excellent credit score, anything above the 750 mark tends to qualify. The difference between good and great credit scores may seem trivial, but what they tell lenders is anything but.

A Good Credit Score Says

  • You are most likely financially responsible
  • You make regular, on-time payments a majority of the time
  • You don’t carry a high debt-to-available credit ratio
  • You can be counted on to repay a loan or line of credit

A Great Credit Score Says

  • You have a long, consistent history of making on-time payments
  • You keep a very low—or non-existent—debt balance compared to your credit limit
  • You have a proven track record of managing various types of loans
  • You are a highly desirable, reliable loan candidate

A good score is usually enough to secure a loan or line of credit, but a great credit score will enable you to do so at the most competitive rates and terms.

Borrowers with great credit qualify for the best credit cards with the most rewards, highest credit limits and lowest interest rates. Individuals in this category also enjoy guaranteed approval on home mortgages, auto loans and business lines of credit. And while borrowers with good credit typically have no issues securing similar loans, they will pay more in interest, incur additional fees, and be capped at a lower borrowed amount than their more-qualified peers.

The line between good and great credit can seem inconsequential, but we assure you—it is not. Imagine you have a credit score of 700 and are seeking a 30-year, fixed-rate mortgage of $240,000 for your next home. Your good credit score has afforded you a rate of 4.12 percent and a monthly payment amount just over $1,160 before taxes and potential association/homeowners’ fees.

Now, consider the identical scenario as a borrower with great credit. If your credit score was just 100 points higher at 800, you could easily secure an interest rate of 3.87 percent on the same home for the same 30-year, fixed-rate loan. Your monthly payment amount would be whittled down to $1,125, saving you more than $12,000 over the life of your loan. Regardless of the amount, that’s extra money in your pocket every single month.

What About a Perfect Credit Score?

If a great credit score lands you better rates, a perfect 850 score must be the ultimate money-saver, right? Not necessarily, says John Ulzheimer at Magnify Money. “It’s almost impossible to achieve the magical 850. It’s also entirely unnecessary.” Ulzheimer points to data from Informa Research, which shows that the lowest mortgage rates routinely go to borrowers with 760 or higher scores.

Take Your Score from Good to Great

Now that we’ve established that a great credit score is better than a good one (and potentially even better than a perfect one), let’s dive into how credit scores are determined and the steps you can take to put your score in the “great” range.

There are multiple factors and variables used to determine an individual’s overall credit and credit decisions are ultimately up to the individual lender. That being said, it helps to know FICO scores are calculated based on the following five key factors:

1. Payment History

Before handing over a lump sum of money or approving you for a line of credit, lenders want to know that you will make regular, on-time payments. While they can’t predict the future, they can look to your past payment history for reliable insight into whether you will be a responsible borrower. Late payments, bankruptcies and collections will impact this area, which holds the most weight in the calculation of your overall score.

2. Current Debt Owed

How much debt do you have compared to your credit limits? Are your credit cards maxed out, or close to it? The higher your credit utilization is, the less desirable you are as a borrower. If your balances are currently high, aim to reduce them down to at least 30 percent of your overall limit. Better yet? Eliminate them altogether.

3. Length of Credit History

The longer you’ve been borrowing money, the more detailed your credit report will be. Lenders prefer borrowers with longer credit history as it provides them with more information about spending habits and the reliability of an individual.

4. New Credit Accounts & Inquiries

Whenever you apply for a line of credit—regardless of approval or acceptance—an inquiry will be added to your credit report. If you have multiple applications in a short amount of time, it can signal financial instability and desperation to lenders.

5. Types of Credit

The more diverse your credit report is, the better off you’ll be. Borrowers with various types of credit show lenders that they can manage a range of loans and debt responsibly.

If you want to increase your credit score, work on improving your behavior in these five important areas. Start by making on-time payments and getting your credit utilization down to 30 percent, as these two have the biggest impact on your overall score. Read more tips on how to improve your credit score.

Once you’ve established healthy habits and laid the basic foundation, building your credit score over time will soon become second-nature.

The post What is a Good Credit Score vs. a Great Credit Score? appeared first on LendingClub Blog.

Source: lendingclub.com

New TV Ads Reflect Most Common Reasons for a Personal Loan

As we continue building awareness around our mission to help more Americans control their debt, create better financial health, and meet their life goals, last month we began testing new LendingClub TV commercials with a broader audience.

The ads, part of a four-week nationwide test on a variety of networks, including A&E, Comedy Central, CNN, MTV, and NBC Sports, reflect the two most common reasons people come to LendingClub for a personal loan: credit card debt consolidation and managing unexpected home repairs.

Back on Track: Dirt Bike

Hit a bump in the road? No one plans to rack up medical bills…but it can happen. LendingClub can help you get back on track with access to a personal loan and an easy payment plan.

Living the Dream: Water Heater

The realities of home ownership are not so glamorous. If you find yourself facing unexpected home repairs, LendingClub may be able to help with a fixed-rate personal loan.

Some Debt You Plan For, Some Just Happens: Summer Camp

Getting in over your head with credit card debt is common. Making your way out of it can be tough. At LendingClub, we can help you consolidate your debt and find savings by providing access to a personal loan. Plus, we do it all online. No branch office. No stuffy suits. Lots of potential savings.

Now it’s your turn to share your story.

Have you started saving more money or put yourself back on track to financial well-being? Share your own financial journey by tagging #LCFinancialHealth on your favorite social channel. Just remember to be careful about providing any private financial information publicly.

The post New TV Ads Reflect Most Common Reasons for a Personal Loan appeared first on LendingClub Blog.

Source: lendingclub.com