What happens when you default on your Lending Club debt?

Lending Club, the largest online lender for personal loans in the United States, specializes in peer-to-peer lending. This means it reviews potential borrowers’ applications and, if approved, matches them with an investor or several investors who provide the funds at a fixed interest rate. Lending Club charges an origination fee of 1% to 6%, based on the loan amount. Typically, its loans are best for consumers with at least fair credit and a low debt-to-income ratio. Its loan repayment terms generally run three to five years, and loans can be as small as $1,000 and as large as $40,000. Here’s what happens when you default on your loan.

Related article: Online lenders often collect debt differently than traditional banks. Here’s what to consider

What to do if you fall behind on Lending Club payments

Overall, Lending Club has positive consumer feedback, with more than 50,000 user reviews on its website and an average 4.82 out of five stars. Consumer reviews with the Better Business Bureau are not as strong, though, with an average of two out of five possible stars from 148 consumers. Still, the lender holds an A rating with the BBB.

Because of Lending Club’s approach to delinquent accounts, you may have some helpful options to resolve your debt if you fall behind on payments. But, you may have to make some quick decisions on addressing the debt because fixed-rate loans can be charged off – that is, reported as a loss to the credit bureaus – in as few as 120 days after nonpayment.

Related article: What does it mean to have my unpaid debt charged off?

If your Lending Club account becomes delinquent, you have a few things in your favor:

They won’t sue you

While nonpayment will hurt your credit, you likely don’t have to worry about Lending Club taking you to court. “At this time, Lending Club doesn’t want to be associated with an image of a peer-to-peer lending organization that sues because then people won’t come to them for loans,” said Michael Bovee, co-founder of Resolve and debt relief expert with more than 20 years of experience. 

They sell to debt buyers

“Lending Club recognized, like most lenders, that they’ll only collect on 20 to 30 percent of bad debt, which likely equals what they’d get if they sold that debt rather than sued for it,” Bovee said. This practice of selling to debt buyers can benefit the consumer. Since debt buyers pay way less than face value for accounts, they can be highly motivated to negotiate a settlement because it won’t take as much to make a profit off your account. 

They may negotiate a good settlement

You have to be a few months behind on payments, hurting your credit in the meantime, before getting the opportunity to negotiate a settlement. But settlement may bring you the relief you need if you really are unable to repay your full loan amount – even if Lending Club has sent your account to a collection agency or sold the debt. “I have seen 40 to 50 percent settlements on Lending Club loans,” Bovee said. “This negotiation target is something I have seen hit with contingency collectors and with Lending Club loans being sold to debt buyers.”

What are my options with Lending Club debt?

Unfortunately, your options for resolving your debt are more limited with online lenders than with credit card companies or banks. Lending Club, like most other online lenders, will not reduce the interest rate on your loan to help you resolve your debt. This means the account cannot be included in a debt management plan (DMP). While Lending Club may allow your payments to be made by the agency managing your DMP, this only provides you the ease of having all your debt paid through one program; it doesn’t, however, give you any concessions on terms. 

There may also be other options, such as bankruptcy or forbearance. To learn more about online lenders and ways to manage your account if you’ve fallen behind on payments, read the article “Online lenders collect differently than banks.”