Lending Club Review: A Leading Peer To Peer Lending Network

by Stacey Doyle on 2009-01-0232

What follows is our review of Lending Club, a leading peer to peer lending and borrowing social network. They offer an interesting way to lend, borrow and invest.

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These days, many people are finding it harder to qualify for a credit card or a personal loan. I know a few people who have found it harder to secure loans despite being credit-worthy, and who have now turned to their own circle of friends and family for financial help. I’ve recommended that they check out peer to peer lending through Lending Club instead, as one way to secure loans. This interesting paradigm has been discussed a lot in financial communities and the media lately, where it’s also been termed as “social lending” or P2P lending.

What’s So Great About Peer To Peer (P2P) Lending?

This method for allowing people to borrow and lend directly to each other has been considered a win-win scenario for several reasons:

1. The middle man (banks, conventional lenders) is taken out, simplifying transactions.
2. Borrowers get access to loans they need. They can get lower rates than what is offered through traditional channels.
3. Lenders can make money. They are able to get higher rates from lending their money via peer to peer lending, as an alternative investment. Some reports have it that you can earn up to 9% average returns per year.

Peer-to-peer lending isn’t a new concept, it’s one that has been inspired by practices such as micro-lending or group lending, where family, friends and neighbors pool together their money to help out those who need loans, particularly for business purposes.

To be part of a direct lending network either as a borrower or lender, you can check out Lending Club, a leading company in this field. Here’s how to sign up:

Apply for a Lending Club loan. Open an account as a borrower. Apply for a Lending Club loan.
Apply for an investor account. Become a lender at Lending Club. Open a Lending Club investment account.

Lending Club Review: A Leading Peer To Peer Lending Network

Lending Club is one of the top companies in the P2P lending space. Following are some details for those of you who are interested in participating in this process.

Borrower Requirements and Details

With liquidity sources drying up and tighter credit restrictions affecting consumers, P2P lending has become a great option for borrowers to try out. But what are some of the requirements to become a borrower?

  • Your FICO score should be at least 660. Lending Club borrowers have an average credit score of 713.
  • Your debt to income ratio (minus your mortgage) should be under 25%.
  • Your credit history should show no current delinquencies, recent bankruptcies (in the past 7 years), outstanding tax liens, collections over the past year.
  • Your credit report should show a maximum of 10 inquiries in the last 6 months.
  • Your credit information must show certain limits on number of accounts and utilization.

While here are some details of the borrowing process:

  • The application process is free and takes only a few minutes, but watch out for missed or late payments! You’ll be paying a fee for such events.
  • Your loan will be graded based on risk (determined from your credit score, report and other factors). There’s a processing fee of 0.75% to 3.00% of the loan amount based on that grade, which will be deducted from loan proceeds you receive.
  • You may be assessed additional fees if you incur any delinquencies or collection activities on your loan.
Apply here to become a Lending Club borrower.
Become a Lending Club borrower.

Lender Requirements and Details

It’s easy to lend. Here are some particulars:

  • You only need $25 to start lending. You can do electronic transfers between your bank and Lending Club accounts once you link them. Start small and learn the ropes!
  • Existing account holders receive occasional cash incentives throughout the year. You can apply for a Lending Club account through this link.
  • Interest rates for the 3 year installment loans (with fixed interest rates and equal installments) range from 7.37% to 20.11% as of this time. Of course, rates are higher for those loans with the highest risk.
  • You pay a service charge equal to 1% of amounts paid by borrowers, but this affects your annual returns by less than 1% because it’s not an annual charge.
  • You must be a resident of certain states to be a lender.
  • You need to make at least $70,000 in gross income (with a net worth of $70,000) or have a net worth of $250,000. California residents like myself have slightly higher income and net worth requirements.
  • You can trade your loans — buy and sell them through Lending Club’s Note Trading Platform for a 1% trading fee.
Apply here to become a Lending Club investor or lender.
Become a Lending Club investor or lender.

Lending As An Investment

As an investor, I find that lending through Lending Club can be an interesting alternative to stocks, bonds and other traditional investments. The fact is, Lending Club has yielded its lenders an average annual return of 9.05% over the last 18 months (with past average returns lingering in the double digits). Not bad, in our harsh investment climate! But before you rush in, be aware that there are risks involved in this process. Some things to consider:

  • A diversification strategy for your money is always a wise move. I think there’s room in a diversified investment portfolio for direct loans (P2P notes).
  • Take the time to learn how P2P works. Start small and build up your loan portfolio to minimize risk and loss. Be prepared for some trial and error.
  • Lending Club has a low default rate with less than 3% defaulting after 18 months.
  • Lending involves risk, but you’re able to spread it around in a community of multiple lenders and borrowers.

All in all, Lending Club, as a leading network for social lending seems like a highly relevant platform in today’s tough credit and investment climate. It’s one place you may want to check out if you’re looking to invest and diversify into alternative investments or need to get a loan at lower rates with less hassle.

Still want more information? Then check out these articles on what you can expect by investing at Lending Club. We also discuss how well this network works for those looking to borrow money:

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 21 comments… read them below or add one }

NorCalSavant January 2, 2009 at 3:46 pm

Nice post, Stacey. I agree that investing, i.e. lending money carefully on a P2P site like Lending Club can be a part of a diversified investment portfolio. However, it is important to understand the differences in interest returns between P2P lending and other financial instruments like CDs and savings accounts, and investments like equities. Total cumulative interest returns from P2P lending are about half as those from a CD with the same nominal return rate. It is also important to carefully weigh liquidity and risks associated with P2P lending.

Silicon Valley Blogger January 2, 2009 at 4:09 pm


I agree that before anyone gets into a new type of investment that one isn’t too familiar with, there is much to be studied. Many lenders always caution that you should start with a small amount of money to understand the P2P lending concept and to have a diversified portfolio of loans that you distribute the money across. A lot of lenders got hurt by defaults when the financial crisis hit (and quite a number of bloggers have duly complained), so this type of thing should be entered with care.

A lot of people also wonder why anyone would think they can do a better job than a bank with regards to screening borrowers, so why trust the borrowers? Well, some good borrowers may decide to try P2P lending because of the convenience. I’d consider myself to be someone with excellent credit who’d try to get a loan this way… But yes, it’s something that deserves some study and understanding before you get into it full tilt.

Some positive points and developments were made on P2P lending in recent days.

kitty January 2, 2009 at 4:47 pm

It seems to me that the most obvious investment to compare to P2P lending would not be stocks or CDs or treasuries but corporate and municipal bonds. This seems a fairer comparison since in each of these cases you are talking about lending money to “someone” be it a person, a municipality or a corporation, and in each of these cases the higher the credit rating of the borrower the higher your return. AAA bonds carry lower yields than junk bonds much like the interest you get when lending to people with higher or lower credit ratings. I mean of course individual bonds rather than bond funds since we are talking about a specific loan with specific interest rate and the promise to return the debt at maturity. Bond funds are slightly different animals since they aren’t fixed income investments.

A couple of months ago at the “height” of the credit crisis bonds were extremely attractive. The yields came down now, but there are still some reasonable deals. Over the long term I am not sure how the municipal and corporate debt market will compare to P2P, but it’s something to consider. Also, with munis and corporate bonds you have at least some information about your borrower, at least more info than with someone you don’t know at all. So I think, AAA bonds are probably safer on the average than even a person with the highest credit rating.

There are some differences since the bond interest is usually simple interest, but you can invest the interest payments you get into something else. You can also take yield-to-maturity as the comparison.

Austin Real Estate Broker January 2, 2009 at 5:11 pm

My housemate has used Prosper several times (as a borrower) and really likes it. Since the terms can be long a few thousand dollar loan is quickly processed, at a decent rate, and can be paid back on schedule or in advance. I don’t know anyone who has partaken on the lending side. Personally, I’d loan to people I know, but wouldn’t invest anything in P2P lending that I couldn’t afford to lose.


Guru at MoneyAssistant.org January 2, 2009 at 7:05 pm

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As the credit crisis becomes even more severe, the need for Lending Club, Prosper and such will continue to grow.

Anthony January 2, 2009 at 9:01 pm

I would invest in LendingClub if I lived in the states. I seems like such a good idea. Its a pity Prosper is currently not accepting any new investors. I wonder if they can rebound.

CvilleBirder@Dividend Stocks January 3, 2009 at 6:14 am

We looked into Lending club a few months back as a potential lender. The interest rates were tempting. But, then you read the pleas & plans written by the individuals who are requesting loans. I don’t know, but in many cases we didn’t see much evidence that the person had the skills necessary to run the kind of business they were trying to start or expand. You would want to see that they have both skills and past successes. Maybe we’re just too risk-averse for this.

NorCalSavant January 3, 2009 at 5:47 pm

P2P lending is certainly more akin to individual bonds as kitty says. But, I would say it is surely prudent to compare and weigh it against the range of financial investments available in light of return, risk, and liquidity. I just wanted to emphasize that nominal interest rate return on a P2P loan is not directly comparable to interest rate return on a savings account or CD. Also, P2P borrowing certainly appears to be a better deal for the borrower in comparison with credit card debt which carries generally higher interest rate.

Bill M January 3, 2009 at 7:16 pm

I had a Prosper account and just recently I opened a LendingClub account and want to start “investing” there soon. The problem now is that economy slowing down, the default will go up, even those will good credit as the job market will shrink. If you are thinking of diving in too, consider the pros and cons of doing this.

jeflin January 4, 2009 at 3:36 am

There will be some marriage made in heaven, ie. our money really helped a budding entrepreneur out and the money is returned with high interest.

But on the whole, I don’t expect every loans to come good. Thus, a 12-13% return on capital will not be realistic.

Lauren January 4, 2009 at 8:44 am

Great review. I already have an account there and I agree it’s like investing in “individuals” bonds. It’s really fun to pick and choose. Some you stay away from (I for instance, run away from anybody who seems desperate and say “need money” “please help me or else” kind of thing), but most borrowers seem to have good credit background.

So far, I’m faring well. Average interest rate is about 13%, with 3.2% of my portfolio defaulted after a year, so overall, making about 9% after fees . Not bad at all.

Highly recommended.

Silicon Valley Blogger January 4, 2009 at 9:32 am

@Jeflin, Lauren,

Yes, the 12-13% return is probably not doable on average, especially if a lender does the prudent thing by maintaining a diversified loan portfolio. Although I hear that top lenders can really do very well. But 9% after fees as Lauren has mentioned, sounds pretty good — and after one year, the chance of defaulting grows slimmer. Thanks for the success story!

Studenomics.com January 4, 2009 at 10:21 am

This is an interesting experiment and I am seriously considering trying it. Have you guys hear many success stories? Has there been any really negative reviews?

Silicon Valley Blogger January 4, 2009 at 10:46 am


There have been reports from other bloggers that their loan portfolios were affected when the financial crisis hit, perhaps later in the past year. Some are still maintaining their loans though. I have an account with Lending Club which I’ve funded, and am working to pick loans at this time (more to study the process, less to try to get rich doing this). I wasn’t in a rush about doing this as I monitored the situation with P2P during this crisis (some companies went into a quiet period, for instance). Some adjustments in this fledgling industry seem to be occurring due to the credit situation; some developments and improvements in its favor (based on media reports). I’d love to hear others’ experiences as well.

Again the common criticism here is determining why a lender would think they’d do a better job filtering out good loan prospects than a bank would. Some are suspicious of the borrowers who flock to P2P, wondering why they aren’t looking for loans through more traditional avenues. These are legitimate concerns to look into. I suspect that people borrow via P2P not only because of a last ditch need for credit though — I figure some of them (with good credit) do it for convenience and less hassle, maybe to avoid bank bureaucracy. Hence I say, start small, diversify, pick loans carefully.

If you’re wondering if you should be an investor in this sort of thing, I’d liken it to picking individual stocks for your portfolio. It could be worth the effort for some, who enjoy this sort of thing. Some research and wariness would serve you well.

Olga January 7, 2009 at 11:49 pm

If you’re interested in hearing Renaud Laplanche speak and would like to pose questions directly to him, check out MIT/Stanford’s January 20th VLAB event “Upside of the Downturn:What Business Models and Ideas Work in Today’s Economic Environment?” at:


Renaud and Lending Club will be the feature speaker/company.

Ed: Thanks for the heads up on this, Olga! It’s much appreciated.

pfincome January 16, 2009 at 9:16 pm

I was hoping to start lending on LendingClub but I don’t live in one of the states that can lend money. I have been lending at Prosper for over a year but wanted to compare the two. It seems like LC has some nice options like the $25 bid minimum instead of $50.

Jim H January 19, 2009 at 7:34 pm

Great information. An interesting diversification tactic!

jsp July 11, 2009 at 6:35 pm

keep in mind that there’s a $15 withdrawal fee, so unless you can make a large enough profit, lending club isn’t for you. so if you invest $100 to a single loan for 15% interest, you end up not making a single penny. loaning just $25 isn’t going to help you.

Jeff August 8, 2009 at 2:52 pm

@jsp It seems there is a $25 fee for wire transfer withdrawals, $15 to have them mail you a check, and electronic transfers are free. At least, that is how I read their FAQ.

Silicon Valley Blogger August 8, 2009 at 3:10 pm

I do everything using electronic transfers and have never had to pay any charges. By the way, I wrote a couple of articles on the performance of Lending Club and what kind of returns you can expect from it. The opportunity to make money here seems good — and even better now that there’s been an uptick on the rates that lenders are charging:

Lending Club Review August 21, 2009 at 6:09 pm

Lending Club definitely looks to be promising. While still early, I have managed to maintain a 13% yield.

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