Is investing LendingClub a worthy investment? A look at LendingClub, their process and one investor's experience.
LendingClub and peer-to-peer lending has been maturing over the past couple of decades. Over that time, private lending became a viable market for individuals to receive unsecured loans outside the traditional banking industry. Additionally, private investors are benefiting from almost daily cash flow and potential returns in excess of 5% per year.
In this post, I cover the website, features for investors, investing process, my experience so far, and provide links to get started borrowing or investing through LendingClub. While LendingClub has ceased peer to peer lending, there are other options including Prosper and StreetShares.
LendingClub's Investor Platform
LendingClub’s platform is built to connect borrowers with investors. Serving the borrowers is important, but my blog is geared toward investors. Therefore, I’ll focus on the features available in the investor section.
After creating your account, you’ll be directed to the account summary page. Pictured above, this page acts as the overview for the account. It provides a snapshot of the account value, the status of loans, history of payments and more. As you can see, there are customization options to reflect an adjusted value of the account. For now, I’ve chosen to leave these settings off.
Besides the account summary page, I rely on the “Holdings” page for a quick overview of my account. On this page, I can quickly see the breakdown of my loans status, the balance of my portfolio, and the historical cash flow.
You may notice that I am heavily weighted toward Grade C and D loans. Given my investment strategy of maximizing returns, I’ve purposefully balanced toward higher risk, higher return loans.
The investing section is the key to the platform – it’s where you start investing. Here, you can view loans currently available for funding and filter based on your preferences – term, interest rate and more. Use these criteria to narrow down the available loans to identify your preferred investment opportunities. While automatic investing is available, I prefer to manually review and select my investments.
How Do I Decide Which Peer to Peer Loans to Invest In?
Every investor’s primary goal should be to use this website to earn income. So, let’s look at the loan selection and payment process.
LendingClub’s website provides a decent amount of information concerning the borrower. This is intended to give the investor enough information to make an informed investment decision. The information provided covers:
- Credit Score
- Past Delinquencies
- Occupation & length of employment
- Monthly Gross Income
- Monthly Payment
There’s no fool proof method for predicting which loans will payoff and which ones will not. However, applying a little analysis and common sense will help you evaluate which investments are best for you.
Tracking Loan Payments
Arguably, being repaid should be an investor’s primary concern. To support investors, LendingClub posts payments on an almost daily basis, reports outbound and inbound communications with borrowers, and closely monitors the status of each loan.
Unlike many investments, LendingClub offers investors almost daily cash flow. Returns are posted Monday through Friday around midnight Eastern time, which allows investors to closely monitor the performance of their portfolio. Also, this quick cash flow cycle provides investors with an opportunity to reinvest in new loans and further increase their principal balance and cash flow.
Loan performance is very important, obviously. LendingClub’s account activity page allows investors to quickly review payments and how proceeds are applied to principal, interest and service fees. The payment breakdown is important in understanding how your loan is progressing with respect to the amortization schedule.
My Peer to Peer Investing Experience
I started investing through LendingClub this past May. So, I’ve been using the platform for about 4 months. In that time, I’ve made additional deposits to bring my investment up to $11,000. I’ve made these additional investments in order to better pursue my two goals – 1) long-term growth and 2) monthly cash flow.
I began my LendingClub experience with a focus on maximizing potential earnings. To that end, I actively invested through LendingClub’s secondary market. This market was built to provide investors with a way to sell loans to other investors. Through the secondary market, I invested in non-performing loans (30+ days late), which were offered at a significant discount. Sure, some of these loans would default. But, I expect that the majority of them will be repaid in full. Initially, I allocated over 50% of my portfolio toward investing in these loans, which I defined as “speculative.” Unfortunately, LendingClub closed the secondary market in August. Therefore, I am now allocating a larger portion of my portfolio to Grade C notes.
As you can see in the account summary here, I’ve had two loans charge-off and four loans that are significantly behind. I expect those four loans will eventually fully default. Not surprisingly, all of these loans were purchased on the secondary market.
Luckily, it’s not all bad news. At the bottom of the summary page, you’ll notice a payments section. To date, I’ve received $1,093.15 in payments. That breaks down to $785.52 in principal and $307.63 in interest. At my current account balance, I expect to have approximately $425 in payments processed per month. Given current performance, I expect to earn between 5-10% annually after accounting for charge-offs.
Selecting Peer to Peer Investments
To get started, I go to the “Manual Investing” section of the website. Once there, I select my preferred criteria – Interest Rate, Term and Purpose. This limits the loans displayed to the one’s I am most interested in supporting.
After filtering, I typically see 10-15 loans at any given time. As you can see, the website provides a quick peek at the loan by providing term, total loan amount, amount funded, and borrowers credit score range. This page is where you will select loans to fund and enter the amount you’d like to invest.
By clicking on the loan, you will open the page pictured here. I use this page to apply my specific analysis including:
- Verified income (green check)
- Job Title & Length of employment
- Monthly payment less than 10% of income
- No delinquencies in the past 12 months…
Feel free to contact me with questions about my selection criteria. Or, see my weekly posts that provide account updates. In these posts, I cover payments received, additional funds deposited, changes in loan status, and new investments – including why I selected those loans. Follow along on the updates page – LendingClub Updates
To start, let’s look at LendingClub’s role in the lending process. They have built what it referred to as a two-sided business. Essentially, they have created a marketplace where borrowers and investors can meet to conduct business. LendingClub is the intermediary. They are not, again not, in the business of lending money. Their business is originating and servicing loans. They make money by charging the borrower a fee when the loan closes and then by charging investors a fee every time a payment is processed. Their motivation is to originate as many loans as possible. That means, they’re balancing approving quality loans with creating a high volume of loans. That is why having your own robust selection criteria is so important.
Overall, LendingClub’s financials look strong. With over $900M in Equity, they are positioned to continue to perform for the foreseeable future. The company has almost half a billion dollars in cash and restricted cash available to them. Sure, they are losing money on an annual basis, but that is common for early stage companies. As a publicly traded company, they are uniquely positioned to access equity and debt markets to fund any capital needs.
A common question from investors – what happens if LendingClub stops operating? It is important to understand that the loans you are investing in are owned by the investors, not LendingClub. Yes, they originate and service the loans. But, the ownership is passed to you. In the unlikely event that LendingClub ceases operations, your investment remains safe. The servicing of the loans will be passed to a new servicer and the borrower is still be obligated to repay the loan.
To provide you with a little more info, I’ve provided links to LendingClub’s website where they post reports, filings and more. Also, I’ve added links to the U.S. Securities and Exchange Commission’s website as well as the Consumer Financial Protection Bureau. The SEC is a great resource to view all of LendingClub’s financial statements and the CFPB provides easy access to consumer complaints concerning LendingClub.
Join me on LendingClub
Interested in peer to peer loans? That’s great! The links below will get you started if you want to borrow or invest through the website.
Invest in Personal Loans
As of October 8th, LendingClub is no longer accepting new investors. Their platform for investing in peeer to peer loans will cease to operate on December 31st, 2020.
Borrow From People Like Me
While I don’t cover the borrowing side of LendingClub in this post, LendingClub will continue to offer personal, auto and other loans. Click the link below to get started. Hopefully, they’ll provide investors like me an opportunity to invest in your loan somehow.
The statements in this post are my opinion and reflect my personal experience investing on LendingClub. I cannot, and do not, guarantee that your results will be similar. Please, invest carefully and understand that your investment may lose value.
I do not receive compensation from LendingClub for writing or maintaining this post. However, I do receive an affiliate commission if you use the link above to open an account to invest or borrow.