Peer to Peer Lending Review: Lending Club

by Ryan Yates


Living in the digital age opens up a world of possibilities to investors and borrowers alike.

Now that we can connect to each other on an individual basis, banks no longer needs to be the only source of loans or investments.

Welcome to the new world that is Lending Club – a place where investors earn an average of 9.64% ROI and borrowers pay as little as 6.78% APR.

How Peer Lending Works

Lending Club offers a very simple strategy. Borrowers apply for loans. Lenders search through the applicants and invest in those that interest them. Repayment is automated over a three or five year period, and lenders earn and can reinvest their stake.

In order to protect lenders, borrowers must prove themselves to be excellent credit risks. The average credit score for borrowers is 714, and no applicants with a score lower than 660 are accepted. The majority of borrowers use Lending Club to pay off high interest credit cards, although you will also find many requests for money for small business expansion, home improvement, weddings and vacations. The maximum amount that can be borrowed is $25,000, which helps to protect both borrowers and investors.

In this, as with any investment, diversification is a great idea. Lenders can minimize their risk by dividing their investment over dozens or even hundreds of different borrowers. The minimum increment for investing in a particular account is $25.

For borrowers, peer-to-peer lending allows you to find investors who believe in you-which can sometimes be in short supply when looking for funding from a traditional bank.

Great Rates on Loans

All of Lending Club’s business is done online, so it already has a financial leg up on traditional lenders. There is no need to inflate interest rates for borrowers (and slash them for investors) in order to pay for advertising, paperwork and infrastructure costs. With only a website to maintain, Lending Club does not have the costs associated with your average brick-and-mortar bank, and the money saved helps Lending Club’s users.

Since Lending Club’s inception in 2007, only 3% of loans have defaulted. Because the requirements for borrowers are stringent, investors can feel confident about the level of risk they are taking on, particularly since they have an excellent return to look forward to.

The Fine Print for Investors

Unfortunately, while Lending Club does allow explore the exciting prospects of peer-to-peer lending, it is not available to everyone. Only 28 states are eligible for individuals to become investors. (Interestingly, none of the three states I have called home over my lifetime are eligible). Also, investors must have an annual gross income of $70,000 and a net worth of the same amount. So this investment strategy may not work for individuals who are just starting their portfolios.

The Bottom Line on Lending Club

Making a peer-to-peer loan is a win-win. The lender gets to feel good about using his money to help a fellow American, rather than just seeing his money go into the vaguely defined kitty that is a traditional investment. And borrowers get to enjoy a better interest rate while they make improvements on their finances, business, home or life.


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Have you ever used Lending Club to consolidate debt or build an investment portfolio?

{ 1 comment… read it below or add one }

Investor Junkie August 20, 2011 at

As an investor of Lending Club notes for over 2 years now I can attest how well I’m doing. I”m currently getting 11.45% NAR, which is around 10.5% APR. I document my performance every quarter on my blog.

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