Lending Club is a peer-to-peer lending platform that offers investors an opportunity to earn higher returns compared to traditional investments. The platform allows borrowers to take out personal loans for various purposes, such as consolidating debt or financing home improvements, and investors can fund these loans to earn returns. With over $50 billion in loans facilitated since its inception in 2007, Lending Club has become one of the largest peer-to-peer lending platforms in the world. In this review, we will provide an overview of how Lending Club works, the benefits and risks of investing through the platform, any associated fees, and tips to help investors maximize their returns while minimizing risk. Whether you’re a seasoned investor or just starting out, understanding Lending Club as an investment option can help diversify your portfolio and potentially increase your investment returns.
How Does Lending Club Work?
- Borrowers apply for personal loans through Lending Club, which conducts a credit check and assigns a risk grade to each loan.
- Investors can then browse and select Loans to fund based on the borrower’s risk grade, loan purpose, and other factors.
- Investors can fund each loan partially or fully, with a minimum investment of $25 per loan.
- Lending Club then collects monthly payments from borrowers and distributes the payments to investors based on the percentage of the loan each investor funded.
- Lending Club charges a service fee ranging from 1% to 6% of each payment received from borrowers, depending on the loan grade.
Lending Club’s platform provides investors with the flexibility to invest in a variety of ways, based on their financial goals and risk tolerance. The platform’s performance data is publicly available and investors can view information such as historical returns and default rates to help make informed investment decisions. With Lending Club, investors can potentially earn higher returns than traditional investments by lending directly to borrowers, with the added benefit of setting their own investment criteria based on a borrower’s risk grade, loan purpose, and other factors.
Is LendingClub legit and safe?
Yes, LendingClub is legit and safe for borrowers and investors. Here are a few reasons why:
- LendingClub is a reputable and well-established company that has been around since 2007.
- LendingClub is registered with the Securities and Exchange Commission (SEC) and operates under strict regulations.
- LendingClub uses advanced security measures to protect borrowers’ and investors’ personal and financial information.
- LendingClub has an A+ rating with the Better Business Bureau (BBB) and has received positive reviews from customers.
Investment Benefits of Lending Club
- Potential returns of up to 6-7% on average, higher than traditional investment options such as savings accounts or CDs.
- Diversification benefits by investing in a variety of loans, spreading out risk across different borrowers and loan grades.
- Investors can set their investment criteria based on borrower risk grades, loan purpose, and other factors, and can invest as little as $25 per loan.
Investors can potentially earn higher returns by investing in Lending Club loans than with traditional investment options such as savings accounts or CDs. Lending Club offers investors the opportunity to invest directly in personal loans, with average historical returns of 6-7%. In addition, Lending Club’s platform provides the ability to diversify investments across a variety of loans with varying risk grades and loan purposes. Investors can set their own investment criteria and invest as little as $25 per loan, providing flexibility when building their investment portfolio.
Here’s an example of the historical returns for Lending Club investors based on the loan grade:
| Loan Grade | Historical Average Return |
| — | — |
| A | 4.83% |
| B | 6.96% |
| C | 8.93% |
| D | 11.49% |
| E | 14.11% |
| F | 15.29% |
| G | 14.65% |
As shown in the table, higher risk graded loans come with higher returns, but also come with higher risk of default.
What is the average return on LendingClub?
LendingClub has reported an average historical rate of return of 4.86% to 6.95% for their investors. However, it is important to note that the actual return may vary depending on the composition of the portfolio and the performance of individual loans. Additionally, LendingClub charges a service fee for their platform which may affect the overall return. It is recommended that investors carefully review the platform and the loans available before making any investment decisions.
Risks of Investing in Lending Club
- The risk of loan default is always present, and investors may lose some or all of their investment if a borrower defaults on their loan.
- Economic downturns can negatively impact borrower creditworthiness, leading to higher defaults.
- Interest rate risk, where rising interest rates may lead to lower demand for Lending Club loans and potentially lower returns for investors.
- The use of unsecured personal loans means that borrowers don’t have to provide collateral, so investors don’t have any asset to fall back on if the loan defaults.
While investing in Lending Club loans can offer potentially high returns, there are also risks to consider. One of the primary risks is the risk of loan default, where borrowers are unable to repay their loans. Lending Club has mechanisms in place to try and minimize the likelihood of default, including a loan grading system for assessing borrower creditworthiness. However, there is always the possibility that a borrower may default, and investors may lose some or all of their investment.
Economic downturns can also be a risk for Lending Club loans. In times of economic uncertainty, borrower creditworthiness may be impacted, leading to higher default rates. Interest rate risk is also a factor to consider, as rising interest rates may lead to lower demand for Lending Club loans and potentially lower returns for investors. It’s important for investors to keep these risks in mind and consider diversification across multiple loans and loan grades.
Another risk to keep in mind is the fact that Lending Club loans are unsecured personal loans. This means that borrowers don’t have to provide collateral, so if they default, investors don’t have any asset to fall back on. This can increase the overall risk for investors and should be accounted for when building an investment strategy.
How do investors make their money from LendingClub?
Investors can make money from LendingClub by earning interest on the loans they fund. LendingClub offers a marketplace where investors can browse loan listings and choose which loans to invest in.
Once a loan is fully funded, LendingClub disperses the funds to the borrower, and investors start earning interest. As borrowers make monthly payments on their loans, investors receive a portion of the interest and principal.
Investors can also sell their loans on LendingClub’s secondary market if they need to liquidate their investments.
Lending Club Fees
- Lending Club charges a service fee of 1% to 6% of the amount invested, depending on the loan grade and term.
- Collection fees may also apply if a borrower defaults on a loan.
- Investors should factor in fees when determining potential returns.
When investing in Lending Club loans, it’s important to be aware of the fees that may apply. Lending Club charges a service fee of 1% to 6% of the amount invested, depending on the loan grade and term. This fee is taken out of the payments that borrowers make on their Lending Club loans, so investors don’t need to pay it directly. However, it does impact overall returns, so it’s important to factor it in when determining potential returns.
In addition to the service fee, collection fees may also apply if a borrower defaults on a loan. This fee is typically 18% of the amount collected and is taken out of the amount that is recovered from the borrower. It’s important to keep in mind that collection fees only apply if a borrower defaults, so they aren’t a factor for all loans. However, they can impact overall returns in the event that a loan does default.
Investors should take the time to understand the fees associated with Lending Club and factor them into their investment strategy. As with any investment, it’s important to consider potential returns and fees when making investment decisions.
Does LendingClub charge a fee?
Yes, LendingClub charges fees to borrowers and investors.
- Origination fee: 2% to 6% of the total loan amount
- Late payment fee: 5% of the overdue payment
- Returned payment fee: $15 per returned payment
- Service fee: 1% of the amount of each payment received from a borrower
- Sell processing fee: 0.5% to 1% of the sale price when selling a note on the trading platform
It is important to review and understand all fees associated with using LendingClub before borrowing or investing.
Lending Club Investing Tips
- Diversify investments across multiple loans to minimize risk.
- Invest only what you can afford to lose.
- Regularly monitor investments and adjust strategies as needed.
Investing in Lending Club loans can be a great way to earn potentially high returns, but it’s important to approach it with a sound investment strategy. Here are a few tips to keep in mind when investing in Lending Club:
Diversify Your Investments
To minimize risk, invest in a variety of loans across different grades and terms. By spreading your investments across multiple loans, you can reduce your risk of loss if a single loan defaults.
Invest Only What You Can Afford to Lose
As with any investment opportunity, it’s important to only invest money that you can afford to lose. Lending Club loans are not government-insured, and there is always a risk of loss if borrowers default on their loans. Only invest money that you can afford to lose without impacting your financial security.
Monitor Investments Regularly
Investors should monitor their Lending Club investments regularly to make sure they are performing as expected. It’s important to adjust investment strategies as needed based on market conditions and loan performance. Many investors choose to reinvest their returns to further diversify their investments and potentially increase their returns over time.
By following these tips, investors can approach Lending Club as a sound investment opportunity that offers potentially high returns balanced with manageable risk.
Can you make money using LendingClub?
Yes, it is possible to make money using LendingClub. LendingClub is a peer-to-peer lending platform that connects investors with borrowers. Investors can earn money by lending money to borrowers and receiving interest on their loans.
Here are some things to keep in mind when using LendingClub:
- LendingClub offers competitive returns compared to traditional investments such as savings accounts, CDs, and bonds.
- Investors can diversify their portfolio by investing in multiple loans, which can help reduce the risk of default.
- It’s important to understand the risks associated with peer-to-peer lending, including potential loss of principal if borrowers default on their loans.
Overall, LendingClub can be a viable option for investors looking to earn a competitive return on their investment. However, it’s important to do your research and carefully consider the risks before investing.
Overall, Lending Club is a reputable and popular peer-to-peer lending platform that offers investors the potential for attractive returns. Their investment process is simple and transparent, making it easy for investors to choose loans that meet their investment goals and risk tolerance.
Investing in Lending Club does come with risks, such as the potential for loan defaults, economic downturns, and fees that can impact overall returns. However, there are certain strategies investors can employ to minimize these risks and earn potentially high returns.
By diversifying investments across multiple loans, investing only what they can afford to lose, and regularly monitoring investments and adjusting strategies, investors can approach Lending Club as a sound investment opportunity.
If you are considering investing with Lending Club, it is important to do your research and fully understand the investment process and risks involved. Additionally, it’s always recommended to consult with a financial advisor before making any investment decisions.
Overall, Lending Club is a great option for investors seeking higher returns than traditional savings accounts or stock market investments. If you are willing to take on a measure of risk, Lending Club may be a great addition to your investment portfolio.