LendingClub P2P Lending

LendingClub P2P Lending

Let me begin this post by saying that I’m not a financial expert. Any interesting article about money on this blog was probably written by someone else. However there is some value in money talk from somebody who isn’t an accountant or financial planner, which is why I’d like to share my experience at LendingClub with you.

According to Wikipedia, LendingClub is a person-to-person lending website that pairs borrowers and lenders through a matching system that combines a search algorithm, credit decisioning, a secondary market, and a choice of loan durations. According to me, it’s a fun website that lets you dabble in investing and make a little bit of money on the side. According to the SEC, LendingClub is a legitimate organization. So there you go.

Basically what happens on LendingClub is you transfer some money over, shop for peer-to-peer loans, and then place your investments – usually in $25 increments. I won’t go into full detail about that process now so if you’d like to learn more about it, check out LendingClub’s official investing guide. Instead I’d like to tell you about my experience and how you might decide whether this is a responsible thing to do with your disposable income or not.

LendingClub Performance

I’ve been with LendingClub for just over a year now. My portfolio performance is as follows:

  • 37 total notes invested at $25 each
  • 5 have been fully paid back on time
  • 0 have been late or charged off
  • Net annualized return is 10.33%
  • I’ve made $95.79 in interest

I haven’t invested a ton of cash in the platform yet, mainly because I wanted to try it out for a year. I’m always skeptical, but over time I’ve grown more and more confident in peer-to-peer lending. LendingClub does a great job of vetting borrowers and making sure your investments are safe. There will be defaults eventually, but I’ve been lucky to avoid them completely thus far. As you can see from the numbers listed above, LendingClub could be my best performing investment if I ramped it up a little more.

Investment Criteria

For those interested in trying LendingClub, I’ll share my filter criteria that are used to select notes. You can save custom filters and browse notes by dozens of criteria, which is part of the reason why I like LendingClub so much. You can really find some notes that you are confident in and still should produce a nice return. There are other options to filter by than what is listed below, but this is my base filter set. Once this is applied, I start to look at the borrower’s credit score and reason for borrowing.

  • Term: 36 months.
    You can also choose 60 month loans, but I’m not interested in tying up my cash that long. The more time you expose the loan to, the more opportunities there are for something to go wrong. Stick with the shorter option.
  • Months Since Last Delinquency: 60 months or more.
    I don’t want to lend to someone who has had trouble paying their debts in the past, mainly because I’m not looking for a high risk/reward portfolio at the moment.
  • Delinquencies (Last 2 Years): None.
    Same reasons as stated above.
  • Max Debt to Income Ratio: 15%.
  • Max Loan Amount Up To: $15,000.
    I don’t want to invest in anything too big, working off the assumption that people are less likely to default on smaller loans. I don’t know if that’s statistically true, but it feels right and has worked for me thus far.
  • Inquiries in the last 6 months: 3.
    Someone who is making a lot of loan requests in a small window of time is probably too desperate to borrow, at least for my risk tolerance at this point.
  • Minimum Length of Employment: 3 years.
    I’m not as strict about this filter criteria, but it has worked well for me thus far.

Final Thoughts

As you can see, I’ve been successful with LendingClub even using a pretty low-risk approach to selecting notes. The parable of the talents in Matthew 25:14-30 calls us to seek a return on investment on what God gives us, and LendingClub is a pretty good option to get the ball rolling on that endeavor if you’re a first time investor. If you are in fact looking to start investing without much experience or upfront capital, give LendingClub a try.

  • Do you think Christians should set money aside to invest in addition to tithing, even when money is tight?
  • Have you ever used a peer-to-peer lending service before? If so, how was your experience?
  • If you are skeptical of peer-to-peer lending, why?