What are the risks of using LendingClub?
Investing or borrowing through peer-to-peer lending platforms like LendingClub involves navigating unique credit, liquidity, and financial hazard factors. For investors, the primary risk is borrower default, as many unsecured personal loans are issued to individuals with less-than-perfect credit profiles, and unlike traditional savings accounts, peer-to-peer investments lack government-backed insurance protection against credit losses. Economic downturns can trigger widespread default spikes across loan portfolios, significantly reducing expected investor returns and eroding principal capital. Additionally, secondary market liquidity for peer-to-peer notes can be limited, making it difficult to liquidate loan portfolios quickly during financial emergencies. For borrowers, risks include high interest rates for those with lower credit scores, potential origination fees, and severe credit score damage if repayment difficulties lead to defaults or collections actions.
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