Lower Interest Rates with Credit Sesame and Lending Club
It used to be that only savvy technophiles would extol the virtues of online financial tracking software, but nowadays, it's not uncommon to use websites to track banking, investment, and debt information. Consumers have even come to trust institutions other than banks with their financial data (or perhaps realized that banks don’t care much about their financial security anyway), and there are many benefits to using financial tracking software, like payment and late fee alerts, as well as advanced features like budgeting help.
I signed up for Mint.com ages ago and have used it for years to track my spending. It has been a fairly useful tool, but it definitely has its limitations. So I was excited when Credit Sesame approached Wise Bread requesting a review of their online credit management website, which is still in the beta phase. Although I had the option to simply run through a test scenario with the site, I elected to actually use Credit Sesame as a customer. After all, I pay some pretty high interest rates — might as well see what kind of deals they had to offer a real consumer! (See also: 4 Places to Start Your Debt Management Crusade)
Signing Up and Ease of Use
Signing up for Credit Sesame is easy. Actually, it was much easier than signing up for Mint, because Mint requires you to enter in all of your banking information, whereas Credit Sesame can do all of its work based on your social security number. Credit Sesame performs a soft pull of your credit history, which provides them with the data they need (how much you owe, what your current interest rates are, what your credit score is) to offer you deals on potential loans, balance transfers, and home refinancing, as well as give you free monthly updates of your credit score. A soft pull of your credit history will not adversely affect your credit rate, unlike a hard pull.
Credit Sesame assess all of your debt; including mortgages, loans, and credit card debt; and then goes out and look for better deals. Credit Sesame then summarizes all of your debt data for you on your account, along with suggestions for decreasing that debt. Savings may come in the form of low-interest loans, balance transfers, or refinancing options. Deals available to you are based on your credit history and current credit situation (such as how much of your total available credit is currently being used).
Below is a screenshot from my Credit Sesame profile. You can see that the interface is pretty intuitive, with simple graphics and not too much clutter.
Screenshot from my Credit Sesame profile
Refinancing My Home... Almost
Credit Sesame does a lot of work in offering refinancing options for homeowners.
Some background on my property-investing prowess: I stupidly bought a home at the peak of the housing boom, which means that I am locked in to a 6.375% mortgage. I have never missed a mortgage payment, but it's hard to keep paying every month knowing that the value of my home keeps dropping. Refinancing would really help me with my finances and free up some money for other things.
Now, don't think I haven't already tried to refinance my home. I have been to three mortgage brokers over the past couple of years. Not one of them has been able to refinance my mortgage; in addition, none of them was able to give me a reason why. All of them stated that it had to do with "government regulations." One guy even blamed it on the Obama administration (this was two months into the Obama presidency).
After my credit was soft-pulled, Credit Sesame notified me that I qualified for a couple of refinancing options through their preferred partners. Credit Sesame offered me three possible money-saving scenarios for refinancing, with details for each including total cost, monthly payments over time, initial savings and total overall savings, additional principal needed, etc. The image below shows a screenshot from the 7/1 ARM 40-year option, which would be a good choice if I planned to sell the house within six years or so.
When Credit Sesame recommended a mortgage refi from CapWest Mortgage that would save me over $500 per month, I was skeptical. Apparently, President Obama was personally making sure that I couldn't refinance, so I had little hope that I would be eligible for this refi.
It turns out that I was right, but Obama had nothing to do with it. As Kent Ewonus, VP of Mortgage Lending at CapWest explained to me, my mortgage is serviced by US Bank but owned by Freddie Mac, and only banks that have a are qualified servicers for Freddie Mac are able to process such mortgages. CapWest Mortgage did have the ability to work with Fannie Mae-owned mortgages, but Freddie Mac would require a different broker. Credit Sesame does not currently have the ability to get data from Freddie Mac (I doubt many services do), and as a result, was unable to point me to a mortgage broker who had a program specific to my mortgage. However, Kent Ewonus was kind enough to point me to several institutions that do have the ability to work with Freddie Mac-owned mortgages, which is more information than any of my three previous brokers had felt the need to divulge. I appreciated that openness.
I'm still looking into refinancing, but I will likely have to do so outside of my Credit Sesame account. The feature would be useful for anyone who is looking to refinance, and who doesn't have a stupid Freddie Mac-owned mortgage.
Loans Through the Lending Club Partnership
A few days after I began investigating my refinancing options, Credit Sesame announced a new partnership with Lending Club. Although Credit Sesame had already offered advice for decreasing debt through balance transfers, Lending Club opened a new opportunity for Credit Sesame users who needed low-interest loans to pay off higher-interest debt.
What is Lending Club, you might wonder? Well, you've probably heard all of your keffiyeh-wearing, chai-drinking friends talk about Kiva, a peer-to-peer lending organization. Kiva.org is a website that allows lenders to contribute to business loans in the developing world and elsewhere. While Kiva certainly wasn't the first peer-to-peer lending group, they were the most successful at harnessing the power of the internet to allow many people to contribute small amounts of money to larger loans, allowing for greater funding of entrepreneurs in countries all over the world. The loans are paid back over time. With Kiva loans, you will likely get your money back as the loan is paid off, but you'll never earn any money on your investments; you just feel good and worldly for having helped get a business in rural Mongolia up and running.*
Lending Club is taking a similar peer-to-peer lending model. Lending Club allows people who need a loan to request one, and then the thousands of potential lenders can decide if the loan is worth the investment. The key difference between Lending Club and an organization like Kiva is that Kiva charges interest on the loans that they distribute and keeps the interest; Kiva lenders do not make money on the loans that they make. People who lend money through Lending Club actually stand to earn money on their loans. (See Xin Lu's article on Lending Club for an investor's perspective.)
Like Kiva, Lending Club investors will finance business loans, but they aren't limited to that alone. You can also take out a loan to consolidate debt, pay off credit cards, purchase a car or truck, perform home improvement, make green improvements to your home or property, or even pay for your wedding or elective surgery.
Basically, Lending Club functions a bit like a bank, except that you can have more direct control over your investments as a lender and you might find yourself with a much lower interest rate as a borrower.
If you sign up as an investor, you can choose to fund portions of loans yourself, or you can invest a certain amount of money and allow Lending Club's algorithm-driven servers to divide up your money and invest in a diversified portfolio of loans. Money Ning has a good analysis of Lending Club as an investment opportunity.
Of course, you can apply to be lender or a borrower through Lending Club directly, but taking advantage of the partnership between Credit Sesame and Lending Club is particularly useful and helpful, because Credit Sesame will only display Lending Club loans to you that you are qualified to receive. This doesn't guarantee that investors will fund you, but it greatly improves your chances.
Lending Club doesn't just hand money out willy-nilly. The lowest credit score accepted by Lending Club is 660. My credit score is 730, which is pretty good, so I was immediately qualified for a low-interest loan through Lending Club.
I jumped on it. See, a couple of years ago my credit card interest rates jumped through the roof when I missed a single payment while traveling overseas. Despite utilizing credit consolidation services, which are supposed to help lower your interest rates to help with debt repayment acceleration, I still had a massively high APR (27%) on two Bank of America credit cards. At that rate, I was going to take a total of three years to pay down the debt.
Lending Club allowed me to plead my case to potential investors, which meant explaining what the loan was for, and how quickly I expected to pay it back. Within eight days, my loan was completely funded by hundreds of small investors. The check was in my hands within two weeks of my initial application.
It is always possible that an applicant's loan may not be funded. If you wish to apply for a loan through Lending Club, make sure to write a detailed description of what the loan is for, as well as your plan for paying it back. There are no early repayment penalties.
There was an uncomfortable moment when I realized that my employment information was viewable by potential lenders in my borrower's profile — I had simply been filling out data as it was requested of me, and it didn't occur to me that anyone could find out where I worked. If I worked for a large company, it wouldn't bother me, but I work for a very small firm. I answered the question openly, for the sake of being as transparent a borrower as possible, although I was given the option to ignore the question. Since I am talking openly about this loan on a personal finance website, it's not like I value extreme privacy, but I can see where someone else might want to avoid giving away that kind of information.
If you have privacy concerns, don't fill out any of the optional fields when filling in your borrower data.
Lending Club Fees
Another thing I didn't realize initially was how much money Lending Club was going to take off of the top of the loan; I would have asked for more money if I had realized how much of their fees were going to be taken out before the loan was distributed to me. Lending Club has a 1% service charge, which isn't terrible, but does take a significant chunk off of the top of larger loans. If you are applying for a loan through Lending Club, you may want to tack on an extra 1% in order to cover the costs of Lending Club fees.
I'm now going to be able to pay off my loans in approximately a year-and-a-half as opposed to the three years that it was originally going to take. I could choose to pay them off over three years with lower my monthly payments, but I want this debt monkey off my back.
I did encounter a couple of bugs during the process of reviewing the offers of loans from Lending Club through Credit Sesame, but they all seem to have been resolved at this point. For instance, my application to the Lending Club crashed my browser right at the end. Fortunately, I still received an email telling me that my loan application was complete within a couple of minutes. Since the site is still in their beta phase, small glitches are to be expected.
Who Should Sign Up?
If you have terrible credit, Credit Sesame might not have many deals for you. I asked a friend with lousy finances to sign up, just to see what the difference would be in offerings, and the difference was that there weren't any deals available to someone with bad credit. Credit Sesame and Lending Club are conservative with their offerings, investing in people with good credit. This doesn't mean that you shouldn't try it out, even if you have lousy credit, but do recognize that better loans tend to be offered to people with positive payment history.
All in all, I had a very good experience with Credit Sesame and its partner, Lending Club. I'm certainly happy to be able to pay off those massively inflated credit cards and start paying a much more reasonable rate.
This article is a review of Credit Sesame's services, as well as the loan application process through Lending Club. I did not receive any compensation for writing this article, although I did apply for, and receive, a loan with through Lending Club as a part of reviewing the Credit Sesame and Lending Club partnership.
*I lend money to Kiva all the time, so please don't get your hemp panties in a bunch over the fact that I know you're a great big hippie.