Investing in Lending Club

The Lending Club is one of the best peer to peer lending platforms for investors available in the United States. It is one of the oldest and biggest platforms. Lending Club investing is a good way to diversify your income and to have a source of extra cash flow.

 

In October 2020, Lending Club ceased all new loan accounts as it is transitioning into an online bank, LendingClub Bank, after the acquisition of Radius Bank. As of December 31, 2020, Lending Club no longer operates as a peer-to-peer lender.

What is Lending Club

Lending Club is the biggest peer to peer marketplace in the world with a market capitalization of more than $1.7 billion. The company has more than 3 million customers and has disbursed credit worth more than $45 billion. In 2020, it had more than $800 million in revenues. At its peak, the company was valued at more than $15 billion. Lending Club stock price has been going up for the past one year.

How Lending Club Works

Lending Club works as follows. Individual consumers like you and companies are constantly in need of credit. To get these funds, they can go to the bank to borrow. Alternatively, they can come to Lending Club, and borrow from other people and companies. Therefore, Lending Club provides a platform in which borrowers can borrow money from other people. It also does the screening to ensure that the borrowers have a good credit rating.

Who Can Lend Money in Lending Club?

 

Not everyone can lend money using Lending Club. In fact, the company has a number of set of conditions for one to become an investor. Some of these terms are:

  1. The investors must reside in one of the state listed here.
  2. They must also meet the key financial conditions like annual income and net worth.
  3. They must be over 18 years old and be American citizens.
  4. They must deposit $1,000.
  5. The loans invested have between 36-60-month terms origination.

If you don’t meet all the requirements, you can also opt for one of the other peer to peer lending platforms. Or check our comparison of Lending Club vs Prosper Marketplace, another big peer to peer lending platform.

If you meet all these terms and conditions, you can then sign up and fund your account. Once the company verifies the details, you can now start investing in one of the notes provided by the company. Alternatively, you can opt for robo investing, where the company’s algorithm will make the investment decision. This option is ideal for anyone who is busy and don’t have the time to invest in the notes.

Lending Club Returns

With American interest rates so low, Lending Club does not aim to have double digit gains. Instead, the goal is to ensure that your funds grow slowly and at a rate that is above the CD rates. Therefore, the average annual return on Lending Club investments is between 5% and 8%. This is a good return at a time when the yield on the ten-year treasuries is about 2%.

However, these returns do not outperform stocks, which have been having double digit returns in the past few years. In general, the returns depend on the notes that you decide to invest in. If you invest in risky notes, you will have higher returns compared to if you invest in less risky notes.

Risks of investing in Lending Club

As with all types of investments, investing with Lending Club comes with its own risks. Some of the most common risks are:

  1. Company risk: while Lending Club is the biggest in the industry, it has never been profitable. In 2018, the company had losses of more than $120 million. Therefore, you should be aware that a loss-making company can go under if it is unable to secure the working capital.
  2. The company was also involved in a scandal that saw its stock price tank. In the scandal, the company’s founder was manipulating the loans given.
  3. Interest rates risk. If interest rates rise, you will need to continue holding the loans that you have given out. With this, you will miss on the opportunity to make more money by investing in high-yielding instruments.
  4. Default risk: There are risks that customers who you lend money to can default on their obligations. Some can even die. When this happens, there is no insurance of your funds.
  5. Emergency funds: when you have invested in stocks and you need emergency funds, you can easily exit the investment. However, with Lending Club, it is almost impossible to exit such a trade.

Why choose Lending Club above others peer to peer lending platforms?

As an investor, there are a number of reasons you might want to consider investing in peer to peer loans through the Lending Club.

  1. It is the largest in the industry. It has more than 200K other investors. Being large enables it to spend money on marketing and developing the platform.
  2. Since it is a public company, you have access to the inner-workings of the company through its disclosures. These disclosures includes the quarterly earnings, annual report, and conference calls.
  3. It has great historical returns. In its website, it says that the historical returns have 4-8%, which is higher than what you would receive when invested in the treasuries. In addition, the company says that 99% of its portfolios see positive returns.
  4. Investing in the company is a simple process that takes less than 10 minutes. As you invest, you have the quality data like the credit ratings that were in the past reserved to banks and credit unions. Finally, you receive the interest payments to your account every month.

Diversify your income with Lending Club

Investing in Lending Club is a good way to diversify your income. However, because of the risks described above, it should not be the first option that comes to your mind when it comes to investing. As mentioned above, another recommendation is to invest in safe index funds and ETFs before using the peer to peer marketplaces.

Key benefits of Investing with LendingClub

  • It is the largest company in the space with more than 3 million borrowers and more than 200K investors.
  • It is a public company, which means that most of its materials are well-known.
  • It’s screening algorithms are highly advanced.
  • Investing with the platform is pretty easy.

In October 2020, Lending Club ceased all new loan accounts as it is transitioning into an online bank, LendingClub Bank, after the acquisition of Radius Bank. As of December 31, 2020, Lending Club no longer operates as a peer-to-peer lender.

More Information

 

Kasper is our expert for saving, investing and bank accounts. Kasper holds an MSc in Mathematics and worked with Mercedes-Benz and the Dutch tax authorities. Read more about Kasper and the whole editorial team at FiFi and our editorial guidelines.