Lending Club is a San Francisco based peer-to-peer lending company that was founded in 2006. They are the largest online marketplace connecting investors and borrowers, while offering lower rates than traditional banks.
Statistics on their website show that, “71.17% of Lending Club borrowers report using their loans to refinance existing loans or pay off their credit cards.” Since launching, Lending Club has issued over $9 billion in loans, with more than $1.6 billion in new loans issued in the first quarter of 2015.
For investors, Lending Club is a new way to invest in quality borrowers and earn solid returns. Lending Club shared that as of March 31 2015, the average Lending Club borrower shows characteristics that include a 699 FICO score, a personal income of $73,619 (in the top 10% of the US population), and an average loan size of $14,448.
I recently asked Reddit users about their experiences with Lending Club and got some helpful reviews and advice for other investors:
Ease of use
LABANKER was one of the Reddit users who shared their opinion of Lending Club from an investor’s point of view, stating:
“I’m a fan! Great returns, user friendly, etc. I specifically like that LC offers the ability to screen loans and auto invest funds.”
Zach Hamilton is another investor who has been using Lending Club for about two years now – and loves it. In terms of how easy the platform is to use, he said:
“The platform is very simple to use getting started, however when you start to dive into deeper functions and targeting it becomes much more difficult. Almost anyone can get started and invest in a few notes, however there is a ton of information out there detailing which notes are worth buying, and which you should stay away from. Default rates vary from state to state, income levels, debt purpose, and pretty much all of the other factors that you can sort loans by.
I have been using their automated investing system for more than a year now. At first, it was quite confusing but now it’s just on autopilot and returning between 7-14%/year.”
Customer service
When it comes to customer service, Hamilton says he considers the platform totally self-service and has not interacted with them.
Part of Lending Club’s mission is to use technology to help reduce costs to borrowers and investors, making it simple for tech savvy investors to use the platform without much guidance. Zach also feels that Lending Club’s fees are fair: “Again, the fees are just built into the platform and are nothing that I can control or complain about. LC deserves their cut by allowing small investors access to this asset class.”
Is Lending club risky?
The next thing I wanted to know was if investors had many issues receiving payments and whether Lending Club was straightforward about risk. Hamilton explained:
“Everything is automated, so whenever a note defaults, it just defaults. Just like any investment, there is an amount of risk involved. The notes pay interest in proportion to the risk that LC has deemed them to have. However, several third party websites have written at length about why different types of notes (debt consolidation vs. car loans vs. home improvement, etc.) have different risk profiles.”
Would we recommend Lending Club?
My last question was, “Would you recommend Lending Club to any level of investor, friends, or family?” Zach responded:
“I would recommend it to someone who is looking for exposure to US consumer lending. This is not a get-rich-quick game, nor is this incredibly high-yield paper. I would also tell everyone to be weary of the potential for a recession to affect the default rates. Lending Club payments will be the first debt payment that people decide to not pay if they lose their jobs.”
Another Reddit user who made a small investment in 2010 and has since invested over $90K (with a current account value of over $130K), shared their experience:
“I was getting 16% interest for the first few years but as time goes on with the notes the risk of default is higher. I’m at around 10% right now. I’ve noticed more defaults recently than a few years ago. Also a lot harder to find good notes recently as they get funded within a few minutes by big investors.
I don’t do any buying on the trading platform, I only sell my notes there, usually if they are 30+ days late. I tried Prosper with a few thousand but I didn’t like it because you were not allowed to sell late notes on their trading platform which I thought was stupid.
I have 1100 fully paid notes, 1200 current notes and 145 charged off/default loans.
I would recommend it as an investor.”
One great aspect of Lending Club and other peer-to-peer lending platforms is that, with smaller notes, investors can diversify risk, so that if one borrower defaults, they are not losing as much as they would have if they had funded the full loan.
Conclusion
It is clear that from an investor’s point of view, Lending Club is a great new service that allows them to automate investments and earn steady returns. Keep in mind that when it comes to investing online, it is important to do due diligence – figure out which investments suit your profile and which ones you should stay away from.
As mentioned above, as Lending Club continues to grow, there will be changes. Whether it is a recession or big investors coming in and taking all of the good notes, be prepared to expect some variation in risk over time.
Another important thing to note is that Lending Club is not available to both investors and borrowers in all states. A Lending Club blog post helpfully states which states can invest in the platform, as well as who can borrow and trade with them.
