Lending Club is a relatively new lending company in the rapidly growing peer to peer lending industry. It provides a way for borrowers and lenders to connect in an organized, diversified and efficient manner. It provides an alternative for borrowers who aren’t satisfied with banks and credit card companies. For Investors, this is another avenue to diversify investments outside of stocks and real estate. Investors willing to risk their capital can transfer funds to their account and begin lending almost immediately.
They have the option to screen each loan individually based on collected information such as amount requested, borrower’s intended use, credit rating, credit to debt ratio, and payment history. Lending Club classifies each borrower based on these factors with a category rating of A-G, with type A being the lowest risk borrower. The less risky the note, the lower interest rate for the borrower and therefore the lender as well.
The investor can select how much they want to invest in each loan; they are not required to fund the entire loan; this is the key to the Lending Club experience. It provides diversification opportunities by investing in many different categories of loans at lower amounts per loan. These are called notes and can be as small as $25 increments and in fact Lending Club recommends spreading your funds across many notes to reduce your investing risk. Automated investing is another option for investors looking for more of a hands-off approach; this is the method I use. You just select your target allocation of each note type and Lending Club does the rest.
Lending Club charges a 1% fee to process the payments borrowers make on their loans. You can also expect a number of the borrowers to default on loans reducing your overall return. Accessing your funds can be difficult once invested depending on the loan term so I wouldn’t consider this a liquid investment. They do generate monthly income though so that is a nice feature. Since 2007, all funds combined have averaged out to about 8% return to investors. This is impressive and is right up there with stock market returns depending on the selected time frame. Your investment returns are fully taxable unless you take advantage of some of the benefits of the Individual Retirement Account (IRA).
As of today, Lending Club as issued over 13 Billion dollars in loans so there’s no shortage of loans in their marketplace. Certain eligibility criteria apply so you’ll have to check the site to be sure if you’re able to invest or borrow. I really enjoy utilizing Lending Club as a way to diversify my investments and generate some extra income and I would definitely recommend checking it out if you’re looking for other investment opportunities. Check it out at Lending Club.com.