Lending Club Review

I am now an official member of the peer to peer lending scene at Lending Club.  Over the last couple years I have read a lot of positive reviews of sites like Lending Club, but never fully investigated the opportunities to participate in peer to peer lending there.  Between the daily drum of stock market decline and notices of savings account rate reductions, I finally decided it was time to review my portfolio mix and find an alternative place to park a small bit of cash, and the peer to peer lending scene at Lending Club seemed attractive enough.

Since I am a complete novice at social lending, but not the lending side of business (I worked in credit for several years), I decided to start small with a $100 investment and review my performance after a few months. I signed up for an investing account at Lending Club, funded my first $100 via my linked bank account, and I was off.

One of the things I like about Lending Club is the ability to spread your investment across a number of individual loans through a tool called LendingMatch.  Think of it as a mutual fund for lenders – you select the criteria for borrowers you are interested in loaning money to and the desired range of interest rate, and LendingMatch returns a number of loans meeting your criteria. You can then invest in a single loan, or fund a fraction of dozens of loans to spread out the risk.

Risk/Reward Model

Big banks often get beat up for charging excessive interest rates. I know I’ve griped about it enough here at Frugal Dad.  But social lending puts you on the “other side of the desk.” You scrutinize borrowers a little more closely, and review their stats, when some of your own skin is in the game. You expect to make a little more in interest for a high-risk borrower than you would someone who appears to be a lock for paying in full and on time.

As with any investing, there are risks with peer-to-peer lending.  Borrowers could default on the loan and you could potentially lose your investment, so it pays to scrutinize potential Lending Club borrowers closely and balance a portfolio of both low and high risk borrowers.

Personal Stories Are Compelling

In addition to the chance at earning a decent rate of return on my investment, I also like the idea of funding someone’s dream, or helping them consolidate debt at a decent rate to pay off accounts with outrageous interest charged by their credit card issuer.

At Lending Club lenders have the ability to review borrowers’ profiles which includes their credit score range, income (which Lending Club reviews for legitimacy), and a personal story from the borrower looking for a loan. I can usually review the profiles and line them up next to the numbers to separate those genuinely interested in borrowing and paying back money, and those looking for a handout.

I’ll report back in a few weeks to let you know how my loans are performing. So far, so good!  If you are interested in joining me at Lending Club, simply follow the banner below to sign up.


  1. I heard about these lending clubs a long time ago on the news and it sounded like an interesting idea. This is a great place for people to get money since the banks aren’t really lending anymore.

    I also like the personal touch of getting your money from a human being instead of a faceless corporation.

  2. I have been investigating peer lending sites for a few weeks now, but I’m still a little leery about it. I can’t wait to hear how this goes for you!

  3. You read their summary and have access to their credit info to make a decision? That is profiling and it’s wrong! Everyone has a RIGHT to get money lent to them at the same rates as everyone else and it’s not their fault if they don’t pay it back. It’s the rich people’s fault. Darn them.

    Interestingly, the upper-range on that ad is 19.37%. That’s basically a credit card rate. Ouch.

    I do have one question, do they hide the pertinent information like their name, address and such due to the fact that you are able to read their credit history and financial information? If not, then they are not complying with the privacy-in-lending laws.

  4. @DavidK:

    I wonder how they’re going to balance the borrower’s right to privacy with the lender’s need to make an intelligent decision as to whether the borrower is who s/he says s/he is, much less whether s/he is a good credit risk.

    Splashing a borrower’s personal information across a Web page is surely a recipe for identity theft. But without access to plausible income and debt history, I don’t see how a prospective lender can get enough information to determine whether a borrower is who s/he says s/he is, much less whether s/he is a good credit risk.

  5. @Squeaky,

    Well, that is the question, isn’t it? How does the lender make an informed decision without the intermediate party becoming liable for misuse of the sensitive personal information of the borrower? I would guess that they may be masking the borrower’s name and specific address information from the lender.

    Another point I was wondering about is that for all the time that FrugalDad and other lenders spend valuating their potential borrowers, I wonder if it is actually worth the man-hours involved. For example, if you put in $1000 and lend to multiple people for an average of 10% return, you’d have to spend less than $100 worth of your time reading and evaluating borrower information. Otherwise, you could use that time in another side hustle making more money for your investment of time.

  6. I’m new to all these financial stuff, and it seems kind of scary to put money into this lending club thing. I agree with DavidK, it does seem kind of effy. Please let me know how this all works out. I would like to start investing, but I am still pretty reluctant.

  7. Thanks for the post. I have seen these around but like everyone else took them with a grain of salt.

    Keep us update don how it goes. Do you have any recourse if the borrower defualts? A bank has claim to the asset you bought or can come after you right? What do you have?

  8. I can’t wait to hear the results. It sounds like a great opportunity to invest in an individuals success. I’ve heard Clark Howard talk about this in the past.

  9. I’ve been a member for a while, so I can answer some of these questions:

    1) Gains are taxed as regular income, just as if you had invested in the stock market.

    2) It doesn’t take long to invest in the loans, you can just accept the default ones from it’s tool that automatically selects a diverse group of loans from how much you want to invest. I personally tend to just view the loans that are closest to being completed, based on the reasoning that a lot of people already thought the loan was worth while and it means my money is tied up “in funding” for a shorter period (I still review the loans before I, get them, though, I don’t go for any that I think are too high of a risk).

    3) Loans are sent to collections if the borrower doesn’t pay, but that’s no guarantee they will be able to fare any better.

    4) You can get a taste for free, if you get referred by a current member, they give you $50 to start out with (but you have to invest it there, so at best it’s $50 paid out over 3 years (unless your borrowers pay off early), as all notes are for three years).

  10. Are they still giving out the referral bonuses??
    I do not see a mention of that on their website..??

  11. On my invite page it still says “We’ll Pay Your Friends $50 when they become lender members” – so I assume so. I can’t recall if it ever explicitly said anything when I was signing up, but immediately after signing up the referral bonus was there.

  12. Hi Barrett – I just signed up with your referral, thanks for the 50 bucks! I’m a little nervous about investing my own money right now because I’m worried about the increasing number of bankruptcies. Also, some of the unverified incomes seem suspiciously high – a lot of people earning more than 20k a month. But the extra 50 dollars will go a long way in hedging my bets, especially since I won’t be investing big bucks.

  13. Hi..
    I have another question about their referral scheme, a member gets $25 when he refers a borrower; what does he get if he refers a lender member?

    Secondly, what triggers accrual of referral bonus – the referred member’s registration as a borrower or when the referred member posts his first loan request or when the referred member’s loan gets funded? Similarly, what triggers referral bonus in case the referred member becomes a borrower?

  14. There’s no bonus for referring a lender, as far as I can tell (I think I mistakenly said there was above, but it’s only for referring a borrower).

    I haven’t referred any borrowers, so I can’t answer your second question on when the bonus occurs.

  15. Keep in mind this is a highly speculative investment as these loans are UNSECURED. Be prepared to invest $$ you can afford to lose. Default rates are about 8% of all loans. Lenders beware.

  16. Prosper’s default rates are much higher than Lending Club’s. I have been pretty happy with my LC experience so far. Averaging 11% with no defaults yet.