Lending Club for Investors Review 2023
Below is our review of Lending Club as it was in 2018.
Commission & Fees - 8
Customer Service - 8
Ease of Use - 8.5
Diversification - 9
Amount of Deals - 9
Due Diligence - 8
Investors can use Lending Club's P2P platform to see potentially higher returns than from traditional fixed-income investments. However, it's not without its risks and limitations, and the service is open only to accredited investors in a limited number of states.
Fast-forward to 2015. I decided to end investing with LendingClub and let the invested notes wind down over the next three years. At the peak, I had over $22,000 invested with Lending Club and was earning around 8-10% in net annualized return (NAR). As you can imagine, I was quite happy with my returns.
I felt my test of this service was a success. I stopped investing with Lending Club only because I felt eventually we will have another recession, in which defaults would increase. I sought after other investments with fixed returns.
Since 2015, my returns have stayed around 8% without any further changes, and I currently have about $500 left in that account. I have taken the money out from any notes that have matured.
In 2018, Lending Club contacted me and asked if I would like to write an updated review of its service. As part of the agreement, Lending Club deposited $5,000 in a newly opened account. The only requirement from me is that I must invest the money for a least one year with the service. No other conditions exist, and I am completely free to say what I want about Lending Club — positive or negative.
Since my last updated review, a few changes have been made to the service, and I will discuss them in detail. In addition, I’ll detail my updated filtering techniques for better returns.
For those who are unaware, Lending Club allows individuals to invest in other people’s loans. It allows individuals to invest in an asset class that previously was available only to banks.
Lending Club Features
|Investment Length||36- 60|
|Note Types||Unsecured, Secured|
- Account Types — You can open these types of accounts with Lending Club: Individual, Joint, Traditional IRA, Roth IRA, Simple IRA, Rollover IRA, Trust, Corporate and Custodial.
- iOS and Android App — You can see the status of your Lending Club account via the mobile app.
- $5,500 Minimum for IRAs — Lending Club requires at least $5,500 to open an IRA. Taxable accounts still require a minimum of only $1,000.
Lending Club Borrowing Process
First, some background on borrowing from Lending Club.
- Applicants apply for a Lending Club loan online.
- The applicants must have a FICO score above 660. (You can use the help of services such as Experian Boost™ in order to improve your credit score).
- Over two-thirds of the loan applications get rejected by Lending Club.
- Only a small subset of individuals get approved, which is part of the risk management the company performs.
Individual borrowers can apply for a loan amount from $1,000 to a maximum of $40,000. The interest rate is determined by Lending Club and is based on the applicant’s credit rating. Rates are very competitive when compared to traditional banks and start as low as 6.16% APR. The highest possible rate is 35.89% APR. The best APR is available to borrowers with excellent credit.
The interest rate is fixed for the term of the loan. There are three- and five-year loans available. All loans are unsecured lines of credit and no different than credit card loans. Also like credit cards, any defaults are reported to the three credit rating agencies (Equifax, TransUnion and Experian).
Not only can you invest in individual loans, but Lending Club also offers loans for small businesses, refinancing autos and medical expenses. For the purpose of this review, I invested only in individual loans and in my opinion feel the other types of loans are too risky for their rates of return.
How Does Lending Club Investing Work?
Since this is a blog about investing, let’s discuss how to get started (Here's our guide on how to get started investing). Signing up as an investor is simple and takes a few minutes to complete. You can fund your account either via an electronic transfer from your bank or by mailing a check. Note that Lending Club requires a minimum of $1,000 to start investing in a taxable account and a minimum of $5,500 to open an IRA.
Once set up, Lending Club requires you to invest at least $25 per note. Notes are graded from A1 (lowest risk/lowest rate) to E5 (highest risk/highest rate), with subgrades per rate. Because of high defaults, Lending Club has removed F and G notes from its system.
Lending Club Investing Requirements
Now, it’s important to note that Lending Club isn’t available to all investors. As per requirements by the SEC and each state, the platform has net worth and income requirements.
- Income Level — In most states, you must have a gross annual income of $70,000 or more and have a net worth of $70,000 or more. In the state of California, investors must have a gross annual income of $85,000 and a net worth of $85,000.
- Approved States — Lending Club is available to investors in most states except the following: Alaska, New Mexico, North Carolina, Ohio and Pennsylvania.
- Net Worth — If your total net worth is greater than $250,000 ($200,000 in California), there is no annual income requirement. In the state of Kentucky, investors must qualify as an “accredited investor” under the Securities Act of 1933.
- $1,000 or $5,500 Initial Deposit — $1,000 is needed to start investing in a taxable account; $5,500 is required for IRAs.
Lending Club Investing Risks
With any investment, even “secure” ones, you have risk. In summary, here are some possible risks when investing with Lending Club:
- Default Risk — Investments are neither FDIC insured nor equivalent to bank CDs or Treasury notes.
- Inflation Risk — Similar to bonds (since there’s a fixed rate), you have the risk of inflation eating at your returns. However, with the high rate of return, this risk is reduced.
- Management Risk — Lending Club’s annual fee is currently 1%. While this rate has remained steady for years, it could increase in the future.
- Marketplace Risk — This is the risk that Lending Club goes bankrupt. While this is improbable, given the history of Lending Club, it’s not impossible. Lending Club does have contingencies in place should it go bankrupt (an orderly dissolve of the marketplace), but this has never been tested.
- Callable Risk — Loans can be paid in full early, which will affect your return. The downside is you will need to find another loan to replace it.
- Diversification Risk — If you have a small amount of loans (less than 100), one default can dramatically affect your overall return. Ideally, you should have more than 400 notes (in other words, $10,000 or more) invested with Lending Club.
- Liquidity Risk — Loans can be sold on the secondary market, but it can take some time to unwind every single note. Lending Club is a long-term investment.
- Economy Risk — Another recession will more than likely increase overall defaults of individuals within Lending Club. This would cause your return to decrease.
- Pricing Risk — Will Lending Club properly assess the borrower’s risk to default and price the loan accordingly?
With the last issue, you can minimize this risk by specifically picking the loans you want to fund. You don’t think it’s a good loan? Don’t invest in that note. You have control over which notes you want to invest.
Lending Club and Taxes
Lending Club is horribly inefficient in a taxable account, especially if you are a high-income earner. This inefficiency is more than likely because of government income requirements.
It should be noted that Lending Club investments are not considered passive investments by the U.S. government. This means you cannot lock in the long-term capital gains tax rate. Therefore, the IRS taxes any profit as ordinary income.
If possible, you are best off choosing a Lending Club self-directed IRA. It is much more tax efficient than in a taxable account like I currently have. Lending Club does offer IRA investment accounts. A $5,500 minimum deposit is required to open a no-fee IRA. It is also possible to roll over your existing 401(k) or IRA into Lending Club.
Alternative & Comparison
|Fees||1%/year||Averages 2%/year; depends upon deal||1%/year|
Lending Club Investing Strategy
Here’s my updated list of filters I used to maximize my return while minimizing risk. Use them as you see fit, and do your own research before investing. These filters are meant only as a guideline. Your results may vary, and my past performance may not indicate future returns when using these filters.
- Interest Rate — I select from “A,” “B” and “C” notes. I call this the “butter” zone and avoid lower-quality notes altogether as well as “A” notes with rates lower than 7.5%.
- Minimum Length of Employment — Greater than 1 year. The longer the employment, the better.
- Debt Refinance — Go primarily for people looking to pay off higher interest rates, rather than the riskier types of loans (like new businesses).
- Loan Term — 36 months only. The additional 2%+/- return for 5-year notes isn’t worth the additional risk, in my opinion.
- Loan Purpose — I tend to focus on customers looking to get better rates and reduce their debt. I select: Refinancing Credit Card, Consolidate Debt and Home Improvement Project.
- Maximum Debt-to-Income Ratio — 30%.
- Credit Score — FICO score of 675 or greater.
- Delinquencies (last 2 years) — None.
- Public Records — I exclude loans with public records.
- Inquiries in the last 6 months — I select zero.
- Review Status — Yes. I prefer that Lending Club has checked them over. It gives a better chance the loan information is legit.
- Monthly Income — $7,500 or greater. Some previous reports I read showed fewer defaults at the higher income ranges (I can’t find that data in updating this review).
- Exclude Loans Already Invested In — I check this since I want to make sure I don’t invest in the same note again.
- Verified Income — Yes (at least as the initial search filter I perform). I also look at unverified income applications.
While I do make exceptions to this filtering, I tend to look at the big picture. The questions you should always ask are: “Will the individual pay back the loan?” and “Are they a good credit risk?” If you have any doubt in an application, skip it and find a better note.
If no good applications currently exist, wait a few days and check again. There is no need to rush the process. Take your time picking what you consider the cream of the crop, rather than getting stuck with a bad note. Once you purchase a note, it’s not so easy to unload it, although there is a secondary market. In most cases, the goal of buying the note is to hold it for the life of the loan.
I suggest building up a portfolio of at least 200 notes. The more notes you own, the more even your portfolio’s performance will be. More notes help spread the risk out to many loans, should one default. This means a recommended minimum of $5,000 invested. A total of 800 notes (which means $20,000 to invest) is the ideal investment strategy.
I also recommend manually investing instead of the automated investment options. The reason is more control of note selection. However, this comes at a cost, and that is the time it takes to build up your portfolio for investing. It is best to think of Lending Club as a “slow in and slow out” investment. You are investing for the long haul (at least 36 months per tranche). Yes, you have a secondary market, but ideally, you should be thinking of holding the note until maturity.
The nice thing about Lending Club is its transparency with loan data. You can analyze the data yourself and determine pockets of either mispriced loans or what you think are your best loans to go after. Analyzing borrowing trends is something I recommend.
New notes are added at 6 a.m., 10 a.m., 2 p.m. and 6 p.m. Pacific Time every day of the week. The good notes tend to get snapped up quickly, so you are best to either log in at these times or use some of the third-party tools to get your best notes.
Should you want to unload a loan, there is a secondary market from Lending Club called FOLIOfn. This is great if you have a poorly performing loan or need cash for other investments. It’s also a great way to pick up notes from others.
Since my last review, FOLIOfn has improved considerably. It lacked any real filters, and it was somewhat difficult to buy or sell notes. The new improvements have made the secondary market much more useful and, therefore, Lending Club notes more liquid.
Lending Club Pros & Cons[table “proscons” not found /]
I was one of the early investors at Lending Club, and my returns during that period were pretty good. At the time, I took advantage of the credit card interest rate arbitrage. Good borrowers were getting higher interest rates, and Lending Club offered a way for borrowers to get a lower rate. I helped these borrowers get a lower rate, and I got a decent return in the process. Everyone was happy. In the low interest rate environment, investors were desperate for yield, and Lending Club fit this bill perfectly.
With changes in the marketplace, investment opportunities change too. In 2018, as interest rates rise, I question the attractiveness of services like Lending Club. You might be able to find other investments that offer similar returns for less effort.
Is it still possible to invest as private investor in 2021 with Lending club?
Can anybody please point me to LendingClub (and Prosper) default statistics for each year?
Thanks a lot
Hi Mike, Lending Club is no longer accepting P2P investors, as they have merged with Radius Bank. You can find out more on their website here: https://www.lendingclub.com/investing/peer-to-peer
Investing in Lending Club has been the most painful experience of my life. I invested $50,000 with it several years ago. The only way I could get my money out was to stop reissuing loans which I could do on line. It took me two years to recovers my funds which had been loaned out. Some time before that Lending club signed up Strata Trust to hold cash from my account. As the cash accumulated, I had to transfer the funds to Strata. Strata charged me $150 to have them issue a check to me for my cash. It took over 8 phone calls with an average wait time of 20 minutes to finally get Lending Club to accept my one and a half page account form to close the account and issue me a check. I just sent in the form again and am told that all looks fine, as I was told before, and that the company will send in my $37 remaining in my account.
Be ware about this company before you invest. Your funds will be tied up for a long time and the returns are poor. It is the worst company to deal with to do any business.
I have been in Lending Club for a long time….since it’s inception but now Florida is not allowed to do ANYTHING therefore I cannot reinvest even if I wanted to!! I am taking my $$ out as it accrues because of this as otherwise it is just sitting there doing nothing..My adjusted net annualized return is now saying -2.11% and at this time it is in the 42,000. range..I’m disappointed to say the least….
Really biased and unrealistic review that contradicts many other reviews online. Perhaps in 2015 this would have been correct but in 2020 Unless you are connected to the API and getting first dibs on loans you will likely not see returns over 2%, if that. I’ve seen over 25% defaults on loans across the spectrum including A rated loans and many of the loans that end up paid off are paid early before profitable interest can accrue. I am definitely a small investor and slowly grew portfolio over several years to over around 400 notes. I started auto investing then switched to hand picking loans that were not for stupid purchases like vacations and limited to 36 mon and income verified. None of that changed the defaults and the returns got worse as I limited to A-C loans. There are definitely better ways to invest than this soon to be penny stock loan shark.
I put 1K $ in almost five years ago. They spread it across 55 loans. 24 are paid off, 19 current, and 12 defaulted. That’s what, almost 25% default rate? Assuming the 19 current ones don’t also go into default at some point. My net annual return is -0.21%! If I’d put that money in the regular stock market five years ago…
I would NEVER recommend anyone investing in LendingClub. Clearly they don’t screen their borrowers well, and borrowers just laugh as they take your money and walk away. LendingClub doesn’t care – they take their cut regardless.
What a scam.
LendingClub has not been a good investment at all, barely kept up with inflation. I’ve had three separate accounts over the last 5 years, all set to Automated Investing, with their preset distribution across notes (I can’t remember what that particular feature was called as they don’t offer it anymore) until about a year ago . One account had $50,000, another had 10,000 and the newest 3 years old had $6,000. I began withdrawing funds from the two largest accounts one year ago, because the returns were less than 2% annually since inception. Needless to say, I was sufficiently diversified in terms of total number of loans (over 1,000 current notes in one account and 300 current notes in the other) and also diversified in terms of distribution across the different grades (majority in BCD grades and relatively fewer in AEFG grades. Each note was invested at either a $25 or $100 amount. I like the idea of helping people borrow money at less cost than the traditional banks, but the expectations that I had going in to LendingClub were definitely not even closely met. I was thinking that a bad case would be me making 4% annually. I understand earnings are not guaranteed and that they could always be lower or even negative, but I think that by me having had 3 different accounts and 5 years under my belt, and having had invested entirely during an economic expansion, this is sufficient evidence to conclude to all that this is not a good investment at all. I don’t know how I could have done better with automated investing? I set my automated investing to invest according to their ‘historical’ returns formula, but I did not reach anywhere near those returns.
The absolutely MOST frustrating part is that there are no figures that one can find anywhere on their website ( or my account) to get the real, actual, true, rate of return on investments. For example, I want to know how much I can expect to earn if I were to invest in only B notes. This should be trivial for LendingClub to automatically figure out. Just calculate all the B notes which have been completed and closed out since inception of the company and figure out what the rate of return would have been if a person had theoretically invested in all of them. But no. They do have figures for the ‘Weighted Average Rate’ which means nothing significantly relevant to actual earnings. Even ‘Adjusted Net Annualized Returns’ don’t really mean anything because they are always wrong on the high side. For example, I need to know (historically) how much money I would earn after all the financial gymnastics are all settled. Why is it so hard to just state such figures like this. They should have figures like this for each grade of notes and could further divide it into years. They could also have it for several other variables like 36 month and 60 month loans, or whether the borrower owns or rents his home, verified and unverified income, etc. All I really want is just accurate returns data estimates as well as accurate REAL returns on my accounts so I don’t have to create my own complicated spreadsheets to try and figure all this out with only my relatively small sample size of note holdings compared to their universe.
I have been an investor for several years and had a total of 142 investments.. 29 were paid off. 9 were charged off… My annualized return is negative 1.71%.. 5 of the charge offs where with an “A” rating, 3 with a “B” and 1 with an “E.”
I don’t know how investing in Lending Club is a good investment when more than 50% of the my loans they rated as “A” are charged off. I don’t believe they do their do diligence when approving the loans and are being scammed by borrowers.
I tried $5K with them and have a 2.2% interest rate. That is terrible for the level of risk and the growth in today’s stock market. You would be far better off having just put the money in an ETF like QQQ and just enjoyed the ride.
There is no easy way to make money. That is clear. But when their is a decade long bull market and you have spare cash, may as well join the heard. Just remember to keep a significant amount more in cash as it will eventually go bust and that is the real time to buy. That is what Buffet is hoping for, but given he did it 2008/09 I am not sure anyone will let that happen again. As we all know the market will rebound again in 12/24 months. Too much data available today to the general public and too many stock buy-backs and cash being printed. Where else is it going to go?
Not lending club that is for sure.
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I invested $800 into Lending Club loans 2 years ago, a total of 32 loans. Since then, 11 loans have been written off. $720 has been paid back, and if I add in the principal and interest due me one year from now,
I will have made $812 total, or 1.5% total over a period of 3 years, or 0.5% a year.
Wish I had put that money into the stock market or even bonds, would have made 10x as much
I invested $5k 18 months back. Initial returns are high in 5.5% range and defaults are very low. I opted for auto investing. Once I turned off auto investing, default rate spiked and rate of return dropped to 3.2%. Just put the numbers in perspective, out of 200 notes, 20 notes defaulted in less than 3 months after stopping investment. It is fishy and do think LC is manipulating. My suggestion is DO NOT INVEST. I do not think they have enough regulations like traditional banks.
I diversified a large amount of money over all loan categories A-F. Right away I experienced high default rates. Later I decided to liquid most loans. My rate of return was around 1%. Later I discovered the statistics on their website disappeared. Then they stated they are no longer offering E, F, G loans – they all disappeared (too risky). I think a lot of investors got burned. I strongly advice to stay away from these very high risk investments!
I think I got in (and mostly out) during the good times. There are strategies to cash out prematurely using secondary markets, but for P2P to be a set-and-forget investment, you need to believe the economy will stay strong for a minimum of 36 months. And, if you can see that far into the future, there are probably smarter investments.
In fact, if you elect to automatically reinvest in more loans, that means you are confident we will never again have a downturn or a recession. I wish I shared your optimism.
I tried Lending Club as a diversification for my portfolio. After two years, I am now beginning to pull my money out. The reward-to-risk ratio might have been better when fixed income alternatives were paying virtually nothing, but in my opinion that environment has now changed. I have been disappointed by the number of loans written off, and that the write-off percentages don’t even really correlate with the original risk assessment. I have earned about 3.5% after all loans written off–better than I would have done in a CD during the past two years–but I do not consider Lending Club to offer a decent rate of return at this time, given the risks of lax payment enforcement for outghstanding loans.
I agree with you Robert. I am actually trying to pull my money out, but once you stop the cycle of investing, there are no new loans to offset the defaults and then your NAR drops like a rock. My yearly earnings are now negative even though my NAR remains positive. I do not think this is a good investment because you have no idea of the quality of the borrowers. 15% default rate is what I am seeing right now on my portfolio for the last 6 years.
I started with LC about 3 or 4 years ago, initially it was ok. But compare to my MUNI EFT, it was just so so it seems. So I started to pull money out every few months. I’ve invested about $72K with them, with 4K outstanding and I have received about 72.2K so far. Even if I get all 4K back, I would only be making about 5% over as many years! So I guess I consider myself lucky since I didn’t lose any more money with LC. I’m really not sure how you can give it 8.5/10 for this site.
Keeping in mind that a long-term savings account returns less than 1% per year.
I deposited 10050.00 total, from March of 2013 Through 2016, during the same period one lump sum of $7050 was withdrawn in 2014, and 4 other total withdrawals during 2018 totaled 3244.93. I have a current balance of 1608.87.
I show that in approximately 69 months my 10050.00 has earned 1853.80 or 18.44 percent over 5.75 years
~ 3.2% per year
A good place to park money you want to have available but won’t need faster than a few weeks.
I was able to liquidate ~75% of my investment in 3 days on the secondary market.
Oh, by the way, I live in one of those states where I can only buy on the secondary market.
Terrible advice — You can park it in a Online Savings account with no risk at 2.2% right now. Why would you even want to take that risk with lending club. I’ve been an investor for quite some time and their promise even contains a big asterisk. 4-8% interest based on the first 18 months of loans which is before most defaults happen. UGH…. Really there are better places…
Based on your detail, for when you deposited and withdrew money from the investment account, it seems you were averaging a little over 7% pa. I base this on the 7k withdrawal after year one so only 4k was earning interest after 2014. Please let me know if I misunderstood your timeline.
Lending Club stinks. The Adjusted Net Annualized return favors a young portfolio, which is why if you invest the dividends it will look good but if you invest a lump sum you have terrible returns. There’s no “static pool” analysis, which is what real lenders do.
If you’d like to keep your money, find a better vehicle. Unsecured lending is all about the servicer and declining a high percentage of the loans. These guys have no skin in the game to service the loans that you’ve underwritten. They want to be a tech firm not a tried and true finance company
I had hundred’s of loans on this platform from May 13 to May of 16. Regrettably, I am in one of those states where direct investment in LC is prohibited. I was told repeatedly by LC that the prime option would be available when LC because a publicly traded company. That never happened and, to this day, it is still restricted. I live in PA. I went in with a quant approach. I had to use Foliofn which is a secondary platform. I had a quant approach and targeted 7 to 8% for my return. I bought 444 loans, all very small with maturity dates ranging from 12 rot 36 months.
In the end, I earned about 3%. The reason was entirely due to the fees of Foliofn and the bid/ask spread on purchasing the loans. Otherwise, I would have made my desired return. While it is very disappointing that LC never was approved for direct investment by PA, I would say it is worth the time given the following parameters:
1. A LOT of loans. If you think you are diversified with 5-10 loans, you are not and will probably get burned. If you cannot do at least 200 loans, then forget it. Build a quant methodology. Spread the risk.
2. You could also just use their managed product which is a really good option as well. Again, unless you live in PA!
It is very hard for me to grade LC. I know they had troubles on a corporate level, but that did not seem to affect the service. I would still say a 7.5 out of 10 seems reasonable.
Also, traditional banks are now lending again. That means the loans by LC and Prosper might be of less quality than before. Just something to think about.
I invested starting in July 2016 increasing the investment to $5500. I started pulling my funds out about 6 months ago as the portfolio performance of 4.5% was not sufficient for the risk I observed. My charge off rate is about 10%. What convinced me to leave is the number of defaults incurred before the first payment was ever made. To me this is not investing, it is straight up theft by the borrower and I couldn’t identify any tangible steps Lending club was performing to protect me as the borrow. Lending club collects the borrows commission at loan funding, so they make money whether the loan defaults or not. Lending club says they verify income (filter I always used) but I find it hard to believe that many people would fall on hard times making $10k/month with a low debt/income ratio right off the bat. For those wondering, you might collect $2 on a charged off loan after a few months on a $25 load minus about $0.50 collection fee.
Still working to unwind my investment. Not surprised Lending club has discontinued the E, F and G loans. My charge off rate for A is currently 2.8%, B is 3.4%, C 16.9%, D is 15.8%, E is a whopping 37.5% of the notes defaulted, F is 36.4% of the notes defaulted. I only had 1 G note and it was fully repaid shortly after the loan funded. Overall return on my account since July of 2016 is at 4.3% annual rate of return.
Okay so sadly even that I read these reviews I didn’t come to the correct conclusion so let me help other people here.
The short version: DO NOT INVEST YOUR MONEY HERE!
The longer version:
So I agree the idea of LendingClub is good by providing a good service for both the Lender and the Borrower however that’s not what happening in reality!
Well if you are reading reviews about LendingClub before investing that tell me that you worked hard to earn your money and don’t want to loss them for a bad investment (Guess what? LendingClub is a BAD investment)
So the main reason why i still invested after reading the reviews here is because I thought a lot of them is using the “Automated Investing” and I thought by using filter and manually choosing my investment I will have better odd guess what? I WAS WRONG!
It doesn’t matter what kind of filters you use to get a “better” loans that have a lower percentage to charge off YOU WILL LOSE YOUR MONEY.
I have invested $6,000 in LendingClub and currently just wish I can take it back somehow even at small lose.
When a lot of my loans has charge off I Google what lendingClub is doing to get our money back and found that all he do is to call there number that’s ALL.
I also found a website talking about the different types of loans and suggested LendingClub as your goal if you want to take and loan and not pay it!!!
Anyone can build a good credit score and use it to steal money from us through LendingClub up to 40K per loan, You have to understand that LendingClub doesn’t lose a thing when the loan charge off they get there percentage upfront from our money and we are the one who doesn’t get paid not LendingClub!
Let me add another point, LendingClub stock started at $24.75 and now it’s on $3.61 that tells you how good LendingClub is doing.
In case you were wondering what happens if LendingClub went broke, you lose all your money including the notes that still paying!
I took some time to write my review here hoping it save somebody from doing my mistake.
Best of Luck to you all
Well, my experience has been completely different. I choose my own loans, now have 2 IRAs (Roth+Traditional) with LC and regular account. I’ve been with them for about 10 years . It’s only in the last couple of years that my rate has dropped from 8-9% to 7-8%. And to me that’s pretty darn good considering how volatile stock market investing can be. Lending Club, even with defaults happening, is a nice low volatile investment platform. And I recommend it to everyone I know for diversifying their holdings. Especially as you approach retirement. My filter rules are typically B & C loans first, as they pay a bit higher, income of a decent amount and a loan to debt ratio of ) But just hate when people trash something when other data points speak to a whole different experience and a positive one.
I think to realize a few things, you have to forget about the NAR which is displayed on the front page. It shows you an average return. You have to calculate your return based off the statements they provide you. Also, once you start winding down your investment, you will take a hit as most loans do not default within the beginning and only towards the end which is why once your account matures, you get more defaults and which is why when you start pulling out, your returns plummet because you have no new loans to prop up the existing ones.
Thanks for the post. I have been contemplating doing this for a while but the risk involved doesn’t seem to add up with the reward percentages. Perhaps it did much earlier when people were making over 9%! Not so much now with lower profits, rising traditional rates and major irs headaches dealing with defaults. I’m not even sure those earlier investors in this included the defaults for tax purposes because they are so hard to deal with.
Now I did consider this for an Ira account, but I’m not investing $10,000 into this to avoid IRA and various fees. I’ll just go vanguard and keep a 2.25% savings for handy funds.
Most of the investor reviews I have read on LC and Prosper are Dated. The updated ones are just like the one here, the investors have/are pulling funds out of these platforms because the enormous early profits are no longer there.
Has not been a good investment for me. Pulling my money out as fast as I can. I am now down to a 2% return. To many charged off loans. I never invested above a c note. I’m actually wondering why everyone doesn’t take a loan out and then not pay. Apparently lending club has no power to collect. Seems like the perfect scam. Build up your credit, borrow 40k, don’t make any payments, laugh all the way to the bank. I think that’s what happened with my notes.
I assume people don’t want to default because Lending Club reports to major credit bureaus and it counts the same as any other default. Most clients I have referred are trying to improve their FICO scores or consolidate to one payment. No one has stated to me that they want to default–trust me, as their lawyer, many have flat up asked me about defaulting on credit cards after they run them up (of course there is a waiting period and purchases made in that time can’t and should not be discharged). You don’t have the default rate do you?
Personally, I haven’t been happy with Lending Club. I had over 150 notes in automated investing. Over 20 of those have been charged off. My rate of return has been slightly over 1.8%. However, what has irritated me more than anything is Lending Club’s lack of responsiveness and transparency toward me as an investor. Some of my notes apparently never were sent to an advanced collector according to their own log, and I questioned Lending Club about those notes. Lending Club’s response to one of those inquiries was to reply by e-mail as if I was the borrower rather than the investor. In any event, I would have done almost as well depositing my money in a money market account and would not even have had the risk of losing my money. Also, I would have had immediate access to my money rather than having my investment plus minimal returns trickling in for over three years. There are definitely better places to invest your money.
Hi Larry. Thank you for this primer. I just joined LC and am excited to see how things go.
Two quick questions, please:
1) why don’t you consider Debt/Income ratio and/or Credit Utilization in your loan qualifying? Seems to me that those would also be useful in trying to filter out default candidates….no? (of course, I know this also reduces the pool as well)
2) why do you ignore A notes paying less than 7.5%? there’s so few of those already!
You have $500 of your own money left in your account and you are taking money out as notes have matured. Should listeners pay more attention to this review?
Larry can you give us an outline of your investing strategy…I’m currently sitting at +4.5% after 4 years of investing.
I have been with Lending Club for about 2 years and have stopped putting money in and am taking my money out as it comes. I wish I was as lucky as the author, however 20% of my loans are deliquent and most of those were the B and C rated notes. It’s hard to make a return when no one pays their loans. I am currently sitting at -.14%. I was in a fairly conservative asset allocation too which is upsetting.
I’m slowly pulling all of my money out of Lending Club. I was in loans to A and B creditors, and the default rate is incredibly high. My average return is 3.5% accounting for the defaults.
My experience is similar. I experienced very low default rates on loans initiated during 2011-2012. My average return has dropped to 2.2% due to defaults.
If your account is an IRA, it’s even worse. You will pay 100.00 per year as you withdraw and the balance drops below 10k and you will pay 150.00 to terminate the account. There goes another 450.00!!
Same…3.16 percent has been my return after seven years with as much as 9k invested…down to 90 bucks in there still, haha just been letting loans mature and withdrawal funds.
Wow that’s kind of messed up ,you have to make 70k a year to invest in this ,however you only need 1k to start. as long as you’re not going over the 10% of your income you should be permitted to do whatever you feel is right with your extra money
That is SEC regulations requirements, not Lending Club.
Is the $5,000 account Lending Club opened for you yours to keep?
We can do whatever we want with it after one year. I’m considering donating it but haven’t determined yet what to do and didn’t mention anything yet officially on the review.