A few months ago I decided to give social lending at Lending Club a try (my Lending Club review). I was intrigued by Lending Club’s business model, and having a little experience on the other side of the loan officer’s table, I thought maybe I could score a decent return. Here are a few updates from my Lending Club progress report.
For my initial social lending experiment I decided to invest a small amount of money in two loans. Lending Club categorizes borrower profiles based on a variety factors such as credit score, income (which they verify). I balance this against the borrower’s personal story. Trying to read credibility in black and white is not always easy, but when you read someone’s story in the context of their other information you can usually get a feel for their authenticity.
To spread my risk out a bit, I balanced investments in Lending Club borrowers between a medium-risk borrower with a low-risk borrower. Both loans are being paid and are in good standing, yielding an approximate net annualized return on investment of roughly 11%. Not bad for a rookie.
Advantages of Investing With Lending Club
- You have the opportunity to earn better returns than traditional market investing
- Lending Club is selective about the types of borrowers they allow to join
- Flexibility to trade notes, or hold them and reinvest (or withdraw) the interest
- Free to join
If you are interested in investing with Lending Club I suggest starting with a small percentage of your overall portfolio until you get your feet wet. I think you’ll find their platform very straightforward, whether you decided to invest in individual loans, or a collection of loans. Of course, I haven’t invested enough to exactly live off passive income at this point, but it’s a start, and the potential is there for investing more down the line.