I started a Lending Club account last year and I’ve been really impressed by the company during my time there.
For those new to Lending Club, LC falls under the category of social peer-to-peer lending.
It can work one of 2 ways for the average customer. One, a person can apply for personal loans from other members to consolidate debts or help pay off any debts like credit card, student, or personal. LC offers you a cheaper interest rate than you will get else where, making it easier to pay off your debt.
On the side of LC, an investor can invest money in notes – meaning investing in people who are trying to pay off debts. You can choose who you want to invest in, as LC provides loads of information about the person behind the loan, or you can just insert your risk level (7% is low, 20% is high)and LC will choose notes for you.
Lending Club’s claim to fame is their great return return – a whopping 9.65%. To compare, the S&P 500 has averaged around 8% after tax over it’s lifetime, and ING Direct’s saving account is currently at 1.1%.
For investors, the notes are a minimum of 3 years and each is a minimum of $25. If you need to liquify your money, they provide a way to sell notes to other investors making it less risky for short term investors. To maximize return, you can easily choose to reinvest notes. When my principals and interest repayments reach $25, a new note is automatically purchased.
LC takes around 1% as a fee.
With social lending there is the risk of default loans. The default rate has been below 3% since 2007 and LC claims they’re on your side as they only accept 1 in 10 loans – meaning they’re trying there best to make it a safe investing place. Regardless, diversification of notes is your best bet to keep your return high.
My Returns After 5 Months
I started off last fall with a $25 free trial, but eventually invested $500 into 20 different notes.
How does it look so far? Well, pretty good.
I wanted to diversify so I went with a lot of notes – 20 notes, $25 each – since I was fearful of someone defaulting.
(click to see specifics)
So far no one has defaulted and my average return is 14.24%. According to LC, my return compared to investors like me (under $1,000) puts me in the 81 percentile meaning my net annualized rate to date is higher than 81% and lower than 19% of all investors.
After 5 months, I’ve received $68.62 in payments – $22.35 of which is interest.
Who is Lending Club for?
Well, it depends on your situation. Are you drowning under debt? Then maybe you should apply for a loan.
On the other side, do you have some extra money floating around in a 0% checking account that you could do without for a while? The returns on LC’s loans are great, even with a default or two, you should be able to get much higher than any CD or savings account out there today.
I’m considering investing more of my money in LC notes since it’s so difficult to get a good return with CDs and interest rates. Maybe it’s just the investment vehicle you’ve been looking for, too.
Interested? Check out Lending Club today.
Have you had any experience with Lending Club? Leave your stories in the comments!
————————————————————-
I’ve been using Lending Club for about six months now with about the same amount invested as you. So far it’s been doing great, with zero defaults – like you – and I’m currently making about 11.6% on my money. Not too shabby. Like you I’m considering investing more.
One thing I like about it is that you can be as careful as you want to be when investing, choosing the borrowers you want to help out, and only choosing those with good credit. I’ve only used A and B type borrowers, with good luck!
.-= Peter´s last blog ..Time To Get Taxes Done Or File A Tax Extension =-.
[Reply]
Austin Reply:
March 30th, 2010 at 11:43 am
That’s a good tip, Peter. I’ve just done the automatic investing option where I pick the interest rate and they throw the notes at me. So far, so good. I’m sure as soon as I see a default, I’ll get angry at it, and start hand picking ;)
Keep me updated on how you’re doing over at LC.
[Reply]