Guest Post: A review of an American peer-to-peer platform called LendingClub.
Since I am European, I can’t invest in Lending Club, so I could never write about my own experience about LendingClub. Nate Matherson offered to write a review and I’m really pleased to be able to share this review with you today!
Nate has been investing with Lending Club since 2015 and is sharing his experience with us.
My Experience Investing With LendingClub
By Nate Matherson
You can lend other people money on the internet?
Yes, you can, it is called peer to peer lending, and there are plenty of consumers looking to borrow. I first started investing with LendingClub in 2015 out of sheer curiosity. The concept was cool and as someone who is generally interested in FinTech it seemed like a fun way to diversify my portfolio.
Over the last 4 years I’ve deposited $1,058.50 with LendingClub and invested in a total of $2,150.00 in notes on the platform.
While this is a small sum of money, for me this represents a meaningful portion of my portfolio and so far I’ve been happy with the results. My adjusted net annualized return is currently 6.77%.
How it Works
Signing up for LendingClub’s investing platform is pretty easy and only takes a few minutes. Similar to other investing platforms, you must register for an account and provide some basic personal information for account verification.
From there, you can connect your bank account and setup ACH transfer capabilities for deposits and withdrawals. Alternatively, you can choose to fund your account with a wire transfer or by mailing a check.
Personally, I first deposited using ACH from my checking account. Soon after, I set up the bi-weekly automatic withdrawals feature to deposit money into my LendingClub account every two weeks.
After your deposit has cleared it is now time to start investing. On the LendingClub platform there are a few different ways to invest in notes. You can choose to invest manually, automatically, or manually through the traded notes platform.
Personally, I’ve always invested manually as I enjoy looking through the borrower profiles for candidates who I hope are going to repay their personal loan. Automatic investing works just how it sounds, and LendingClub will work to invest your capital for you.
My Strategy for Picking Notes & Loans
Consumers can apply for personal loans for a variety of reasons including business expenses, debt consolidation, credit card refinancing, relocation expenses, home improvement, medical expenses, and even for vacations.
As an investor, you can view the consumer’s loan use case before investing. LendingClub does publish a lot of data about how the different loans perform over time.
For me, I almost always invest in consumers who are looking to refinance a credit card with a personal loan. This is a responsible and proactive financial decision, and it is my opinion that these consumers are going to be more likely to repay.
From there, I try to invest in consumers who own their homes. I don’t have hard rules about employment type, but I generally try to stick with consumers who have dependable sounding jobs like nurses, teachers, police officers, etc.
Lastly, I almost always invest in 36 month loans, and will rarely invest in the 60 month loans.
In short, I target consumers who are refinancing credit cards and who own their own homes. Fortunately, LendingClub’s platform offers a variety of filters that you can use to find the notes you are looking for. I typically stick with A or B graded notes.
For reference, LendingClub grades the notes from A to G depending on the risk that the borrower will not repay the loan. The better the grade (ex. A), the lower the risk but also the lower the potential return. The lower the grade (ex. G), the higher the risk but also the higher the potential return.
It is important to mention, when investing in LendingClub notes you need to invest in $25 increments. I always invest the minimum $25 per note as a way to reduce my borrower risk. However, if you are investing a lot of money with LendingClub, it likely makes sense to invest more than $25 per note.
My Returns So Far
So far I’ve invested in 93 individual notes on the LendingClub platform. Here is the breakdown of grades:
- 35.9% of portfolio – Grade A
- 32.8% of portfolio – Grade B
- 19.8% of portfolio – Grade C
- 5.4% of portfolio – Grade D
- 5.0% of portfolio – Grade E
- 0.0% of portfolio – Grade F
- 1.1% of portfolio – Grade G
As mentioned briefly above, my adjusted net annualized return has been 6.77%. However, my overall annual returns have been reduced dramatically by the performance of notes that I purchased on the traded notes platform.
As a subset, the notes I purchased on the traded notes platform have returned –37.65%, and I’ve avoided purchasing additional traded notes in recent years. On the flip side, notes that I purchased as new have returned 8.57% annually, much better!
When compared to a high interest savings account which may yield 2-2.5%, my notes have provided better returns and some entertainment too. When I customer misses a payment, I am quietly rooting for and checking up on that customer hoping that they catch up!
Added Diversification to Portfolio
Investing with LendingClub is a small subset of my investment portfolio. I try to keep my total investment proportional to other investments such as bonds, index funds, and equities.
If you are looking to add diversification, LendingClub notes might be a great way to accomplish this goal. LendingClub does recommend that you invest in 100+ individual notes to achieve diversification within your LendingClub account.
It is also worth mentioning that there are other peer to peer platforms available for US customers, like Prosper. So you could even further diversify your peer to peer portfolio by investing in notes across multiple platforms.
I’ve only invested with LendingClub, but I might try to diversify to another platform if my account value increases and it becomes worth the time.
Who Is Eligible to Invest?
To open a LendingClub account, you must be a resident of:
“Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin, West Virginia, and Wyoming”
Unfortunately, LendingClub is not taking customers from outside the Unites States at this time. There is now a required initial deposit of at least $1,000, which was not the case when I originally opened my account.
LendingClub offers individual accounts, joint accounts, trust accounts, corporate accounts, 401(k) rollovers, traditional IRAs, Roth IRAs, SEP IRAs, and Simple IRAs.