For an investor, Lending Club promotes high rates of return and easy passive monthly income which is very enticing. Plus you are lending money to, and helping, actual real people instead of a faceless corporation. So what could go wrong? What happens if a person stops paying off their loan?
I have about 60 loans with Lending Club and recently experienced what happens when someone stops paying. First, the loan moves into a “In Grace Period” status. At this time, Lending Club also opens a “Collection Log” on the loan which shows a communication log between Lending Club collections and the loan holder. You will see detailed updates such as “Reached out to loan payer and left a voicemail” which is nice to see as collections does appear to follow up often and frequently. If the loan payer does not respond or states he/she cannot pay, the loan goes into further deteriorating states such as 30+ days late and then 120+ days late. Eventually, if nothing changes, the loan goes into default and may be charged off. Note that there is a difference as “default” means the loan hasn’t been paid for 121 days or more while a “charge off” occurs when there is no reasonable expectation that the loan will be brought current.
In my case, the loan payer brought the loan back into current status and made the monthly payment so I didn’t experience any further issues which is good news. I still believe in Lending Club and think it’s a great way to generate impressive passive monthly income. But it’s always good to keep in mind that there are no free rides and there is always risk with every reward.
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