Lending Club Investor Review – Tracking My Peer-to-Peer Lending Performance

Lending Club Investor Review - My Peer Lending Performance

When I first heard about Lending Club and peer lending, I was intrigued by the idea of crowd-funding loans to people who are consolidating debt, refinancing credit cards, or making home improvements, but I was more interested in investing in the stock market.

Then, a friend showed me his account on Lending Club, and how you can screen potential loans by a borrowers credit score, debt-to-income ratio, the number of delinquencies in the past 2 years, if borrowers have verified their income. After learning about his success with peer-lending, I decided I’d give Lending Club a shot.

Needing only $25 to start investing with Lending Club, in January 2017 I signed up, and funded my account with $200.00 and invested the money in 8 notes. Since that initial deposit, I have continued to add cash to my account and have set up automated lending criteria to let Lending Club automate my investing.

My Performance on Lending Club

Here is a look at my live Lending Club account information via the Lending Club API

Pros of Investing with Lending Club

  • Ease of signing up for an account
  • Good note screening filters
  • Automated Investing
  • Monthly Compounding
  • Low Barrier to Entry

Signing up for a Lending Club Investor account was quick and easy. It only took a few minutes to register, add my bank account to the platform, and schedule the transfer of funds.

I was pleasantly surprised with the number of filters you can apply when screening for notes to invest in. There are 36 different filters you can screen your notes through. Here is a screenshot of all 36 filters you can apply.

Lending Club Note Filters
Lending Club Note Filters

Once I had my filters created, I set up automated investing so that I didn’t have to personally select each note I wanted to invest in. Once you have your custom filter saved, all you need to do to set up automated investing is to select your investment mix. Lending Club has preset mixes of different grade notes.

They rate their loans from A through G, with A being the highest quality loan with a lower interest rate and G being the lowest quality with the highest interest rate.

Lending Club Investment Mix
Lending Club Investment Mixes

The concept that sold me on investing in Lending Club was the idea of generating monthly cash flow that I could immediately reinvest and compound. There really aren’t many investment vehicles that offer this high of rate of return, payout monthly, and only require $25 to reinvest and continue compounding.

Like I mentioned earlier, another great feature of Lending Club is that it only takes $25 to get started. Even if you are a brand new investor with a little amount of cash, you can start investing in notes and take advantage of the monthly cash flow and compounding.

Cons of Investing with Lending Club

  • Only 3 and 6 year notes are available
  • Funds can take 7-10 days to settle in your Lending Club Account
  • Defaults can cause a large decline in your performance if you are not diversified
  • It can take several weeks to find notes that fit your criteria

One of the downsides of investing in Lending Club is that it takes at least 3 years, or as long as 6 years, for you to receive all of your principal investment back. However, Lending Club has partnered with another company, Folio Investing, that provides a platform where you can buy and sell Lending Club notes. I have yet to buy or sell notes on the Folio Investing platform, so unfortunately, I cannot provide a review on their service.

Lending Club Note
Lending Club Note Details

Funding your account on Lending Club was easy. However, it took a week for the funds to settle and start investing in notes. Considering it only takes 3 days for funds to settle in a typical brokerage firm, I found this to be a little frustrating.

There will always be risk in investing, and lending directly to consumers runs the risk of the person defaulting on the loan. If a borrower defaults and you aren’t diversified across a large number of notes, your returns will significantly diminish.

For example, say you have 10 notes ($250 at $25 a note) and one person defaults on a $25 note, you just lost 10% of your principal.  However, if you have 100 notes ($2,500), it is only 1% loss of your principal. Diversifying your loans will limit the impact an individual default will have on your portfolio.

Finally, I noticed when I had set my automated investment filters and had a couple hundred dollars in cash, it could take several weeks to find enough suitable notes to invest the money in. I guess that is the price you pay to find quality notes.

Conclusion

Lending Club is a viable investing vehicle, but like any investment, it has its risks. I believe that Lending Club has quality note screening filters, and that with good diversification you can generate good returns consistently. I will be continuing to update this post as I continue investing in Lending Club. You can check back  on this post anytime to view my real-time performance.

Have you invested with Lending Club or another peer-to-peer lending platform? How was your experience? I’d love to hear about it in the comments!

2 COMMENTS

  1. I did something similar with Prosper.com, but this was in 2006 or 2007. Even though I chose “low risk” options, I still lost most of the money. Of course, this was during the start of the 2008 financial crisis, and Prosper.com (in addition to your mentioned Lending Club) have gotten a lot better, especially with being able to diversify.

    • I’m sorry to hear you lost money on Prosper, Joe. The timing of your investment was very unfortunate. I agree that diversifying across many notes is the way to go. Thanks for commenting!

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