I first found out about Lending Club last summer (in 2012) after Tynan posted an article on his blog about it. There seems to be a healthy skepticism about using it, so I thought I'd offer my two cents after 9 months of activity.
If you haven't checked it out, I encourage you to visit the website a bit. The company is a middleman for lenders and borrowers. A typical customer may want to consolidate their debt, or pay some unexpected bills, and ask for a loan from Lending Club. The company itself will do some due diligence to make sure what the borrower is claiming as income, employment history, etc. is true. The loan itself is then listed on the website, and lenders (us) combine their money to fulfill the loan. This is a very simplistic explanation, but it's enough to get you started.
My experience has been great. I'm averaging about 20% returns. So far, in an admittedly short time-frame, I have yet to have any borrowers miss a payment. I have 3 portfolios set up, including one named "Monthly" that I contribute to automatically each month on the 15th. As soon as a portfolio receives $25 in payments, I purchase another note and add it back into the portfolio.
To find a loan you like, Lending Club really makes it easy with filters. Personally, I filter based on employment length and income level. Then, I sort the matches by return rate, and start making my way through each description. The employment filter maxes out at 5 years, but the note description itself goes to 10+. I typically look for at least 8 years of employment, and focus on the ones that have an actual company listed (they seem to be more likely to meet Lending Club's review process).
I pay attention to the purpose of the loan, but honestly I'm not sure I've held to any sort of pattern or criteria. I like investing in medical-related loans because I feel like I'm really helping that person out in a time that has to be extremely stressful. I also like helping small business loans because of my general interest in the health of small businesses, but these are likely some of the riskier loans to make. By far the most common reason for borrowing is debt consolidation. Assuming there aren't too many red flags, such as more than 5 inquiries in the last 6 months or a high revolving line utilization ratio, I'm comfortable investing in these.
There are two things I do not care for. First, usually 25-50% of the loans I invest in end up being cancelled, which is frustrating because it means I have to go back a few days later and reinvest the funds. It's mainly an inconvenience. I'm somewhat grateful for it, though, because the loans that are cancelled are the loans that probably shouldn't be invested in anyway.
There also seem to be restrictions on the loans themselves. All loans are for either 3 or 5 years, and there is a max of $35,000. I'm not entirely sure why these restrictions are in place, but I'd like to see more options in the future. 6 month and 1 year options would be great, as they would make the investment slightly more liquid. Deciding to invest money in a loan that you'll receive little bits at a time over several years is a big decision. If something happens to me tomorrow, I can't just sell some loans and get my money back like I can do with stocks and other investments.
Overall, I believe this deserves consideration for your investment. The returns are great, and ultimately the risk is fairly limited because you'll end up investing in dozens or hundreds of different people, spread across the country, who work in a variety of industries.
If you have any questions or comments, please feel free to ask. If you're interested in joining, you can send me a private message with your email and I can send you an invite, which Lending Club will pay you $100 for (as far as I know, I receive nothing for this).
If Lending Club (the company) ever folded for some bizzare reason overnight (i.e. it was found that half the investment money was going to terrorists) would you instantly lose all your cash or is there some external protection mechanism in place?
The answer to this is basically "nobody knows."
If there is a bankruptcy, LC says that they will continue to pay notes as quickly as they can, but because of the nature of bankruptcies the payments may be delayed and end up being substantially less than what's owed. However, this is true when you invest in any company that then goes into bankruptcy.
If there's an overnight shutdown, your guess is as good as mine. The borrowers' identities are protected from lenders, so there would be no way for me or anybody else to go after the borrowers directly. Again, though, I'm not sure this is different than any other company.
It's a good point, and I'll be the first to recommend investing in several different companies and investment vehicles to keep your risk limited. The bankruptcy scenario is more likely, and definitely a possibility considering the company is still new and growing, the market is pretty open for new companies to steal share, and the economy is still uncertain.
Now is probably a good time for the disclaimer that I am not offering investment advice, I'm simply sharing my experience :-)
As they say, the best time to start is now. I've had this blog for almost 3 months now, and I have yet to write a single post. I won't bother going through every excuse I've made, but here I am. The timing to start a new project like this isn't perfect, but it never will be. I'm not entirely sure what I'm going to write about, but that's fine, too.
As a basic introduction, I'll say that I hope this blog becomes a useful way for me to organize my thoughts, learn from readers through their comments and messages, and hopefully help my readers gain something valuable as well. My first several posts will likely be based on a cool website I found, or a new book I read, or any other review-based stuff. This is mostly because it'll be hard for me to run out of things I think are fun/neat/interesting/helpful/cool to share, which means I won't have any excuses for not writing.
Having a blog has always interested me, so I'm excited to officially get started and see how things turn out. I don't feel like I have any groundbreaking ideas that everybody should hear, but I do feel like I've found a lot of interesting things worth sharing. I'm not looking to become a full-time blogger, I'm not interested in growing my reader base simply to brag about it, and I'm not committing to any overall theme that will cover all of my posts. I'm simply logging parts of my life on the web as a means to becoming more involved with the online community.
Thanks for reading, and wish me luck!
I logged into my stock account the other day and realized that contrary to my previous claim/strategy of investing solely in Warren Buffet's Berkshire Hathaway, I had no Berkshire shares left. Time for an update, I reckon.
So what happened? Nothing against Berkshire, for sure. I sold almost all of my shares at a profit, and I still have full faith in the company. But sometimes opportunities come along that are too good to pass up, two of which I'm currently invested in.