The Lending Club Experiment … Four Months Later

lc_buildingAdventurous readers may recall that we are in the middle of a Lending Club Experiment – on September 24th, I posted an article describing my first foray into peer-to-peer lending and promised to keep you updated on the progress of the investment.

At the time I invested $10,000, and distributed it mostly among the higher-yielding (and riskier) notes of grade C and below. I ended up with about 400 $25.00 slices of various loans, and the Lending Club calculation engine was projecting that I would end up with a gross return of about 20%, and a net return after the inevitable defaults of around 13%.

For the past four months I have monitored the account, manually reinvesting the principal and interest payments from borrowers and mentally salivating over the high returns. I continued to study the Lending Club business model and read other blogs which experiment with peer-to-peer lending. Meanwhile, in mid-November I exchanged a few emails with Lending Club representatives. From the conversations, I learned a few things:

  • Lending Club surpassed $1 billion in originated/funded loans in November 2012 (it took them almost six years to get to that point).
  • The company made it into the black, generating its first positive cash flow for the fourth quarter of 2012.
  • As of February 2013, the total originations have cranked up another 30%, to $1.3 billion
  • Here’s an infographic describing their 0-to-1-billion progress: http://www.lendingclub.com/public/zero-to-1b.action
  • I asked if they have trouble balancing supply and demand for notes – the answer is that they actively dial up and down advertising to keep those key factors growing roughly in parallel.

So after a couple of months, I decided to double down and add a second $10k, bringing the total investment to $20,000.

It was quite striking, noticing the difference in interest income between my general-purpose ING direct (now called Capital One 360) bank account, which had about $12,000 in it at the time:


.. that’s 2 bucks a month even with an embarrasingly large balance to have in such low-interest account. In all of 2012, I earned a total of only $17.16 on that general-purpose checking account. Versus the Lending Club investment, which has cranked out the following figure in 4.3 months:


Over five hundred bucks, plus another $195 of accrued interest (since notes generate monthly payments and have random payment dates, on average each one has about 15 days of interest accrued).

Although you are surely muttering,

“Duh! Of course there is a big difference between 0.20% interest and 20% interest”

..Seeing that difference expressed in real dollars still made a visceral impact even on Mr. Money Mustache, the man who claims to use numbers in place of emotions.

“Damn, that is some real money pouring in from that relatively small amount of principal”, I thought. So let’s look into more detail on how the risk factor is playing out. Check out my account statement as of today:


It all looks rosy, but there is a hidden side that shows up when you click “more details”. This is where you see the dreaded default rate – the chief reason many people are afraid of peer-to-peer lending. Skeptics point out that loans don’t usually go bad right away.. they go bad after 1-2 years, after a certain percentage of the borrowers hit unemployment or other life events that cause them to crash financially. Fair enough, and you’ll hear about it here as it happens. But for now, here’s what we have:


AHA! We’ve got two loans ($48.46 of principal) that are 16-30 days late on payment, and 4 more loans ($122.77) that are 31-120 days late.  Meanwhile, 523 notes are current, meaning about 99% of our borrowers have been successfully making payments so far. So are we doomed, or not?

Let’s assume pessimistically that all of our $171.23 of principal on those late loans is irrecoverable. If we subtract that from the roughly $759 of interest earned and accrued so far, we would have lost about a quarter of our gross interest. And let’s suppose that the same pattern repeats every four months: another 6 borrowers run off with our precious money and never return. Since you can see in the figure above that our loan portfolio has a weighted average rate of 18.45%, we’d end up netting only around 13.8%. Which is, interestingly enough, pretty close to what Lending Club itself forecast way back when we were buying these notes back in the first article. Thus, as long as the pattern holds, you’re successfully playing the game of high-interest money lending: lots of bad apples, but high enough average rates to balance it out.

And there’s a bit of a bright side to these late loans. Even though Mustachians would naturally condemn any late payer to an eternal financial hell for such unthinkable irresponsibility as ever missing any payment in one’s life, Lending Club manages to coax many of its late payers back into the fold. Observe this graph from their loan statistics page:


According to the stats, I should expect to get back about 77% of loans that show up in my 16-30 day late category, and 53% of those sitting in the 31-120 day bin. After 120 days, you can see that the picture dims considerably – Default means Default. So our future returns will be determined by the rate of future late accounts, minus the recovery rate.

So although the experiment is still young, so far it is going exactly as I had hoped and expected. Returns at 20% are of course much higher than predicted, but that should fall as defaults are charged off and more loans drift into the riskier middle period. But I’d be surprised if the long-term return doesn’t stabilize around the forecast 12% (if something does change, I’ll publish an immediate update rather than waiting for the end of a quarter).

And this is what makes this type of investment so intriguing. I’ve taken less than 2% of my savings, and set it up to automatically generate the equvalent to about 10% of our annual living expenses*. I wouldn’t feel comfortable having much more than that amount invested at this time. But for now the reward, entertainment , and learning value is quite favorable.

A Note on Risk: Many Lending Club critics consider another great recession or a drastic overstatement of returns to be the biggest risk to an investment like this. I have a different opinion: the high-interest consumer lending business model is a tried and true one – whether you love it or hate it, it exists, and it makes money. Lending Club has simply cut off one of the hoses of this gravy train and built an interface for regular schmoes like ourselves to come take a slurp. It’s a great idea.

Thus, the biggest risk to me is that Lending Club itself might be subject to some Enron-style blowup in the future. Although the company seems relatively solid, honest, and well-managed with some big backers, I wouldn’t bet my life savings on the future of any single company. This is exactly why the concept of index fund investing works – you get slices of hundreds of companies, so the death of any particular one is of little consequence to your portfolio.

Lending Club does have a backup plan that should theoretically preserve your investment if LC itself goes bust, but there would still be risks in such a transition. Thus, I think of this $20,000 I have invested as a fairly solid dividend stock that happens to pay 12% over the long run. Since I wouldn’t hesitate to allocate $20k to a reliable dividend stock or REIT, I feel similarly about Lending Club, and that’s where we’re at today. If I want to allocate still more money to peer-to-peer lending and learn more, I might do the research and get a parallel investment going through the LC competitor Prosper.

Interested in trying out your own little allocation? I’ll provide the same link as before, because it benefits this blog if you end up creating an account by using the badge below.

ING_interest lc_lender

Still on the borrowing side? Don’t use Lending Club to commit financial suicide by buying a car or renovating your house on credit, but if you can consolidate credit card loans to a lower rate and then never run a balance on those cards again, you may use this link:

Best of luck to all fellow investors and let us know your own results (including loan grades used and any filters you used) in the comments.

* This is a fun way to think about the rate of return, although in reality the proceeds from this lending club account are earmarked to go to charitable causes as opposed to buying my groceries, as noted in this post.

  • Monevator February 8, 2013, 1:53 pm

    I think the biggest risk with peer-to-peer lending is the unpredictability. I’ve used the lender Zopa here in the UK, and it’s been great for almost five years, except for a four month period in 2008 when its credit checking computer was presumably being used by someone to bid on eBay or create a Pixar rip-off.

    Three of the six bad loans I’ve had originated in those months (these are much higher rated borrowers than yours, and interest rates much lower, hence the small numbers are still meaningful.)

    If I’d not lent money in 2008, I’d be telling my friends Zopa was hugely pessimistic. If I only lent money in that dark period, I’d no longer be on Zopa.

    This doesn’t prove anything except my point — that you have to make thousands of loans over many periods I believe to de-randomize it.

    I went the other way, and just didn’t put too much money in and instead span the wheel! ;)

  • watermen February 9, 2013, 2:35 pm

    Hi Mr Money Moustache,

    I have a question. I started using Lending Club last month, starting with $500, now I am looking into IRA.

    Which kind of IRA account should I apply? Roth or Traditional? Which one is more tax efficient? Thank you.

    • Kowser February 11, 2013, 8:44 pm

      I believe that’s a relationship of your age vs the retirement age of when you decide to pull it out, as well as the ROI you’re aiming for. It’s a job for EXCEL or some other nifty calculator that Google can find for you.

  • Kowser February 11, 2013, 8:43 pm

    I love Lending Club! I have been doing it for 11 months.

    I currently have a posted NAR of 18.08% with an average loan age of 210 days. My NAR would be higher but I did some speculation with defaults at about 10c on the dollar that really skewed things up (only invested $35, but that’s about $350 worth of defaults that LC is counting against me). I think my NAR would otherwise be about 20% + without those. Those account for 8/12 defaults.

    I have over 900 notes.

  • Christopher February 11, 2013, 8:48 pm

    I wanted to set up an account with them for diversification, but they told me that as an American living in another country, I’d be treated as a foreign investor and that I’d have to make a very high investment which would unfortunately be more than my total savings since I don’t make much money here in Mexico. It is a shame they make it so difficult.

  • Chris February 12, 2013, 12:21 am

    Thought I’d throw in my 2 cents. My perspective is probably different than most here as I come from a semi-pro gambling background.

    1. The majority of people here are doing the equivalent of database work in the sports gambling world. For awhile, you could win at sports betting by applying filters to a database – for example, how often, historically did a road team beat a home team. However, as data became more widely available, more advanced metrics came out, quants started entering the sports betting world. These guys still had vast amounts of data but they built models to predict future performance from past results to get higher rates of return. Today, I think you can make money in p2p lending. As word gets out and it becomes more popular, rates of return will drop and those running sophisticated models will be the ones who make the majority of profits.
    2. MMM suggests diversifying assets similar to what Markowitz suggested in modern portfolio theory. In other words, a diversified book of loans has a lower risk profile. However, if you can stomach the variance and also assuming that you can find loans that aren’t as correlated (try to pick people with jobs in different industries), it’d be more mathematically correct to allocate funds using the Kelly criterion and your expected returns on the long run would be larger.
    3. The first people to jump on something new always reap the majority of the profits. Think early quants on Wall St. or guys who got into the online poker boom early. If you’re thinking of jumping on this I wouldn’t wait…early on people are afraid of risk and spreads / returns are high. As word leaks out and more capital is allocated there is more money chasing fewer borrowers and returns are bound to decrease.
    4. Be very careful about black swan or one off events. You have to be very diligent about fundamental changes to your assumptions. For example, I have an NBA model that wins ~55% of the time…we had 2 years where I lost more than I won. The first was when the NBA changed the basketball, resulting in more turnovers than normal. The second was last year’s lockout shortened season with teams playing back to back to backs.
    5. Pay very careful attention to returns dropping and know when to get out – there will be a time when you have no edge and the best loans are being funded by the smartest quants. As soon as you see that happening and you see your returns decreasing or start to break event, get out.

  • FinanceInspired February 14, 2013, 6:38 am

    If something like this was available in the UK I would literally bite their hand off! Anybody got any ideas?

  • RubeRad February 26, 2013, 9:51 am

    Something I was curious about, but didn’t see addressed;

    In the original post about half of MMM’s investment was hand-picked, and half was an automatic LC-created “portfolio” — any way to tell how either half performed relative to each other?

    Is the “portfolio” technique a way to achieve LC averages automatically? (A way to use LC without going in and filtering/researching all the time to reinvest?)

  • ael May 1, 2013, 9:10 am

    Here is a review by financial blogger Alan Roth from CBS Money Watch:
    Looks like a wash, some good, some bad.

  • Ryan May 24, 2013, 10:16 am

    Great article, I’m trying out Lending Club right now and am having a similar great experience. Quick question–did you manually select your loans, or did you have Lending Club automatically select them based on which grade of notes you wanted?

  • Rasec May 28, 2013, 8:18 pm

    MMM, thanks for sharing your experience with LC!

    I wonder if you (or other LC investors) could share your insights on the time it took you to deploy the two $10k investments that you made. Was it about the same amount of time on both occasions or did it differ between 09/12 and 02/13?

    I am considering investing, and wonder how much time it would take to deploy $20k if I use filtering criteria similar to yours.

    • Mr. Money Mustache May 28, 2013, 10:35 pm

      Good question – I would say it is a little slower now (more competition for good notes?). I can usually find about $1000 per day of notes to buy using the strictest criteria (at $25 each), but have not yet studied whether the availability changes at different times of day.

      The more you relax the filters, the faster you can pour in the dough, and I am definitely not sure that my filters will prove to be beating the system in the long run anyway.

      • Rasec May 30, 2013, 12:40 pm

        Thanks for your quick reply.
        Another question, if you will: Any insight, evidence or analysis of time trends in the average expected (or actual) default rates during the past 3-5 years?

    • Brad June 18, 2013, 10:20 am

      The most frustrating aspect of Lending Club for me has been how difficult it is to fully invest the amount I’ve deposited to the platform.

      I can usually find enough loans to fit my filters, but a large part of the problem is that many of the loans that make their way to their website don’t ultimately end up completing the process.

      To some degree LC is a victim of its own success in this regard and here’s why: as their representative explained to me on the phone (this is very loosely paraphrased), let’s say they get 1,000 applicants in a given day. LC denies roughly 900 of them due to not meeting their initial criteria. So the remaining 100 end up on the website and because of the insane demand for these loans lately, nearly all of them get funded within 24 hours.

      LC is still going through many of their more detailed income verification checks and will continue doing so for many days after being fully funded. Many of those loans will not pass these checks and they won’t originate.

      My $25 gets deposited back in my account at that point and I have to start all over. In some cases this is 10+ days after I invested the $25 in that particular note.

      It is a bit frustrating, but the returns seem well worth it! I’m over 15% and that’s with a lot of B grade loans in there dragging down the average. I bought those before I realized D-F were the best performing and I was just giving money away in order to feel “safer” psychologically. Silliness that I’ve since rectified…

    • BadAss CPA November 11, 2013, 1:02 pm

      Trying to find the best filters on an investment that already far outpaces what you earn at a bank sound a whole lot like trying to pick individual stocks and beating the market.

      I use the “Build a Portfolio” tool and lower my amount invested until the projected return after defaults is at least 10% or greater. Takes 2 minutes and I can usually get around $500 at a time.

      • Ryan November 11, 2013, 1:51 pm

        The problem with that is you may be investing $300 in a single note, instead of diversifying with $25 in each…correct?

        • BadAss CPA November 11, 2013, 2:00 pm

          Not necessarily, there’s a Max per note box I always leave at $25. At first it was for diversification, and now I just think it would be easier to liquidate if I ever needed to in a hurry.

  • bubbles mcghee June 27, 2013, 11:10 pm

    Does anyone know if LC releases any data on what their average “hold” on cash in accounts that is idle because the funds have yet to assigned and funded to a loan and/or interest that has yet to be withdrawn or reinvested?

    I am very curious to know what their annual intake is on the “interest” earned on that idle money. And what that the comparison is the value to all outstanding notes.

    I have a LC account. Started in 2009 with $20,000 over that time I have about a 7% return. My current account value is a little over $1000. I am hesitant to start the cycle again. I predict in the next 5-10 years there will a P2P scandal much like the mortgage industry. I currently believe there is a scam involved where by preferred investors get access to cream of the crop loans and what is leftover is given to the masses.

    • Todd August 28, 2013, 11:28 am

      I’ve wondered about the good loans going to preferred lenders. It’s very difficult for me to find the loans I am looking for these days. I check at the right times during the day and yet my available filtered loans go from about 10 to 0 in around 5 minutes, which isn’t enough time for me to even look into the loans before I add them to my order.

  • turboseize July 19, 2013, 5:26 am

    I’m also very interested in p2p-credit.
    As a german, the only possibilities seem to be Smava, Auxmoney (both german) and Isepankur (estonian, but open to lenders from the entire EU).

    Auxmonex seems to attract the desperate sub-prime-segment and they charge ridiculous fees on borrowers, forcing them to buy “certificates” to prove their creditworthiness – regardless if they do get credit or not. I would not want to take part in this.

    Smava, being the first german p2p-platform seems to have a more respectable business model with fees for both investor and borrower only if a loan get’s funded.
    Principal is protected by a funds system – payments to pricipal go to a fund (credit scores are grouped to classes, with a funds each for good, medium and not so good ratings), so if a loan defaults, you only loose interest, but principal is preserved (to a certain extent). I do not know if I like this, as this is socialising losses…
    Then, there seem to be more lenders than borrowers. This has lead to almost any loan being funded, with returns diminishing and default rates above what credit scores predict.
    The next drawback is the minimum size of each note of 250€.

    Then I stumbled upon Isepankur. This is an estonian platform, but some month ago they openend up for investors from the entire EU, but lending is still restricted to Estonians. As I understand, they are planning to expand to Finland, Spain and the Netherlands too.
    They advertise fabulous returns which sound to good to be true (but interest rates for consumer loans in Estonia are said to be around 30% ?!?).

    Are there any European mustachians here who already have experience with these platforms?

    I just signed up with Smava and I think I will give them a try.
    When trying to sign up on Isepankur, Firefox alerted me of an invalid security certificate. Now that’s not too encouraging, is it?

  • Pete July 26, 2013, 8:58 am

    I tried reading through all the comments but didn’t make it so I apologize if I’m duplicating a question.

    Has anyone used LC as a college savings fund for their children? I have a 12 month old and would like to start putting some money aside. If I even put $100-$200 a month into LC accounts and keep reinvesting my interest, in 15 years my son would be in pretty good shape for college. Of course I would diversify with a 529 college saving plan.

    Does anyone have any experience with this to share?

  • Todd August 28, 2013, 11:33 am

    I’m concerned about the default rate that I’m seeing so far since starting in May. I have 400 loans yet I already have 4 loans 31-120 days late and another less than 30 days late. Most of these loans did not even make a single payment, so I wonder how well LC is vetting these. Yes it is a small percentage of my loans, but it can also be very damaging to my portfolio if I keep seeing this kind of default rate so quickly on new loans.

    MMM, since it’s been about 6 months since your last update, could we get an update on your performance of late? Thanks!

  • Todd September 3, 2013, 12:38 am

    Thanks. Good timing. I missed it because I had your site open on my browser for a few days and didn’t refresh. You might want to add the post to the “Lending club experiment” section of your site since I don’t see it added there yet.

    While it’s true that I don’t have a huge number of loans in default, it’s just surprising that so many didn’t even make one payment. Having failed miserably in the early days of Prosper, I’m trying to be more careful this time around.

    Have you used the XIRR method of calculating return? Just curious how that compares to what LC reports for you. LC shows me at 21.6% while XIRR has me at about 17%.

  • Slay October 10, 2013, 8:04 am

    kudos. been on prosper over two years, 9-10%nar, lending club with larger account over 4 years now, 9-10% nar. i run a customized more conservative filter and reinvest proceeds manually every 6-9 months, keeping 10-20% in cash to reassess and to cushion against any negative newly developed trends..

  • Tessa October 19, 2013, 5:14 pm

    What’s the minimum amount you can invest?

  • Kim December 21, 2013, 5:29 pm

    I live in Oregon, and the Lending Club investment site informs me that Oregon residents aren’t allowed to invest in this particular business. Something about a state law controlling interest rates, I believe.

    Any advice, short of moving out of Oregon? (My friends and family are here, plus my sole income is federal disability and I’m working to pull out of a negative net worth. I’ve got no assets of any kind – on the off chance you’re interested in taking on a unique case study some time ;D)

    • Peter Renton December 22, 2013, 6:07 am

      You are allowed in invest with Prosper in Oregon. You can read my review of Prosper here: http://www.lendacademy.com/prosper-review/

      • Unemployed Banker. October 24, 2015, 10:08 am

        You could have a friend or family member in a different state agree to accept your mail. Change the mailing address from your bank account to reflect this new address and enter this address when registering with Lending Club. Worked for me and I live overseas.

  • Don January 5, 2014, 9:52 am

    You originally had split your investment between loans you had picked and the LC auto pick button. I have not seen the results posted between the two. How did that play out in cash and percentage differences?

    • Mr. Money Mustache January 6, 2014, 2:32 pm

      Hey Don, thanks for the reminder.

      Last time I checked, the LC automatic portfolio was actually performing BETTER than my own manual one, because there had been no defaults. So my guess may have been wrong. It is still difficult to tell, because in that type of allocation ($250 per note, for example), defaults are 10 times less common but also 10 times more catastrophic. Still worth mentioning in the main article body though.

      • Unemployed Banker. October 24, 2015, 10:19 am

        I have set up my own filtering process. First of all I only invest if the person is asking for $10,000 or less. The lower the value of the total amount to be repaid…the better. I like to see no derogatories, records, or delinquencies. If I see any I move on to the next borrower. There are enough with perfect histories not tainted with bouts of credit unworthiness. I then look at DTI (debt to income ratio). I only invest if it is under 25% (preferably under 20%). Then I look at credit utilization. Anything over 70% I won’t touch it with a 10 foot pole. The closer you get to 100% means they are getting close to maxing out all sources of credit. Then I look at length of employment. 1 year minimum. Then I look at expected monthly payment and compare that to their monthly income and if it surpasses 12% before taxes I don’t invest with them. I am very stringent and picky but after coming up with this metric I have had a lot of success. I have assessed a lot of notes and have yet to have another be charged off. Early on I had only 21 notes that had been fully paid and 7 that had been charged off (1/3). Now I have over 80 Notes paid in full and still only 7 that have been charged off (less than 10%). I have been investing for 3.5 years and will continue to employ these draconian methods to make sure the borrowers are matching up to my expectations. If Lending Club does not offer me any notes to my liking I will stop investing and start slowly taking my money out. This has yet to happen. My total investment is slightly over $4500.

  • Jenn April 2, 2014, 10:45 am


    I apologize in advance if these questions have already been answered.

    I need to withdraw all of my money from LC, but I can’t withdraw it all in one lump sum. I’m assuming it is because I still have 6 current notes. So, once I sell these notes, will I be able to receive all of my money?

    I invested $2500 and only bought 20 notes. Not great I know, but it means that most of the money stored in LC is my original deposit. How come I’m not allowed to withdraw the amount that is not funding the 6 loans?

    Thank you and thanks for making this blog! It’s been very helpful!

  • Bruce April 15, 2014, 12:31 pm

    I just started receiving returns from Lending Club but have already run into a case where a borrower (D grade) has declared bankruptcy before making his first payment. According to Lending Club the borrower’s credit report from Trans Union showed NO DELINQUENCIES. It is my understanding that it is virtually unheard of for a borrower to declare bankruptcy and have NO DELINQUENCIES on his credit report. Has this happened to anyone else??

  • S.G. June 29, 2014, 1:21 pm

    I read a lot of interesting comments here, which are highly informative. I discovered LC back in 2008, but I lived in US on visa so I could not invest. Now, happily a NYC resident, I am finally making my dent into it.
    A few comments that came to my mind after reading:
    – “Ponzi scheme” worries: LC does not fulfill classic Ponzi scheme definitions. The risk of LC being fraudulent is as high as with any investment where is a possibility that the company/management is falsifying the numbers and eventually it would implode. LC is a platform where borrowers and lenders meet, and LC does the legwork to verify the quality of the loans, makes the money transactions, and gets its cut for it. The risk is not higher (or lower) than buying a single stock. To me, all those private foundations and colleges that invest in nontransparent hedge funds are less responsible, than a Mustachian investing a part of the stash in LC or something similar. Remember Bernie Madoff…
    – “too good to be true”: it fascinates me (as probably any Mustachian), how ridiculous interest rates are people willing to pay… But they are not too good to be true, they are actually LESS than interest rates charged by many credit card companies. That’s why LC business is so interesting. I sometimes just like to look at those loans and wonder. Examples (modified to avoid privacy problems): a loan from someone who makes something like $7000 a month and wanted to borrow ~$13000 for VACATION!!!! Honestly, I wished there was an email contact so I can send the poor soul a message “wake up, your hair is on fire!!!” and a link to the mrmoneymustache for a few punches in the face. I would feel like a saved a life by violence. That being said, I did not finance that loan. But in short, yes, those rates are real, not too good to be true. Look at it as investing in personal junk bonds.
    – “LC may not survive long term”: Consumer debt is one of those (rare) fields that until recently have not been shaken up by recent technology advances. p2p concept can change that and LC is in a good position. If I was in charge of AmEx, I would be working like hell to get our own p2p platform up and running to leverage existing resources (or am I…?). That being said, being the first man on Omaha beach… not always good. While not all p2p lending companies will survive, the concept is too disruptive and interesting to go away. My prediction is that we will se an outburst of p2p lending companies and some/many of them will go broke. There will be consolidation etc. as any new industry.
    – “how much to invest”: there are some wacky ideas among comments, to invest like 50% of the stash… Don’t be greedy, don’t be crazy. Investment in the LC should be under the same conditions as all your investments: only as much as you would feel safe to invest in a single position, whether it is a single stock, mutual fund, REIT etc.
    – p2p mortgage financing: I am inclined to think, it might be a prosperous idea. Remember, if LC loan goes default, there is nothing to take. If there is a house with a down payment, there is some equity. Much less risky, but also smaller interest of course. But I agree, not in the current super low interest environment. You would have to finance some pretty bad loans to make profit.
    And at the end, thank to Mr.MM AND Mrs. MM for running this amazing site. I like to read it, just always shied away from commenting.

  • Geoff July 22, 2014, 12:31 am

    didn’t Shakespeare say “neither a borrower nor a lender be”, but of course he didn’t have this investment option ! Generally throughout history, its been fruitful to be a legalized loan shark ! I have a large amount with Lending Club via institutional side from outside the USA, and believe there is a place for it in most investment portfolios – indeed it is providing a service in a way if people end up paying less on their loans than they’d otherwise pay to Visa etc. I understand the comments people made about putting 50% of portfolio in it, because in theory it shouldn’t have huge capital losses, ie 10%, or 5% of portfolio – the institutional side claims the backtests show 5% gain even in 2009, but I have found that no one in the investing community ever broadcasts a product that backtests poorly ! I do fear that an area for the next credit bubble in the USA is student loans and people may be using this platform to pay off student debt, but if they have a job, I’m fine with that — but agree that next recessionary side where unemployment spikes will be true litmus test — still with Fed basically determined to juice economy at any sign of slowdown, this could still be a while and so am happy to have 15% of portfolio in it and watching that monthly 1% come in- beyond 30% is probably getting greedy and below 5% seems “why bother” .

  • Blake July 30, 2014, 10:49 am

    I’ve been invested in LC for about a year and a half. I have about $50k invested and so far haven’t had any defaults [LUCKY]. I have about 200 notes in funding, 1100 issued and current, 2 in grace period, 1 late < 30 days, 4 late 31-120 days, and 29 fully paid. My weighted average rate is 15.59% and I'm very happy with the performance so far.

    My current account composition is:
    A – 0.8%
    B – 18.8%
    C – 38.7%
    D – 20.5%
    E – 16.8%
    F – 2.9%
    G – 1.4%

    Initially I hand picked each note, but payments were coming in so quickly that I began using the "Build a Portfolio" tool focusing on $25 investments on 36-month loans, usually "option 3" for the highest rate composition. In order to broaden the pool of notes available about six months ago I also opened my filter to include 60-month as well which has helped to get notes issued quicker. I no longer look for the loan type, borrower information, or other specifics. LC seems to do a good job for me weeding out the bad borrowers which is why…today I decided to sign up for the automated investing which is available free to accounts over $2500. It's too early to tell, but with over 1500 notes it's too time consuming to go in and reinvest every week — as well as too costly to let cash sit idle in the account.

    I recommend LC to my friends and family, but few of them have tried it so far. I'm not sure which of us will regret it in a few years, but based on the interest I've already received it's likely them.

    Basically, I think Lending Club is great. It's not my best performing asset, but it takes me basically no time to invest now and provides [relatively] steady returns over 10%. It's much better than a CD or "high-interest" checking account.

    • BB July 31, 2014, 7:04 pm

      Blake your returns are incredible! I’m averaging 11% after adjusting for past-due Notes, 14% before. You must have been picking notes exceptionally well to not have a default yet, hopefully you have continued success now that the notes are being chosen automatically.

  • Steven August 24, 2014, 2:48 am

    I could use some advice maybe someone here can help. I’ve been wanting to invest and start my financial life. I found lending club but ran into a problem with having to gross 70k a year. It seems like no matter what the lower class cannot advance. Why must you make so much annual income just to invest your own money? I have a nice stash in my safe and would like to succeed in life! My question is are their any other opportunities out there to invest with that don’t require annual income requirements and actually net decent gains? Any help would be appreciated. Thanks.

    • Mr. Money Mustache August 25, 2014, 11:39 am

      Hi Steven,

      The reason they set the 70k requirement is to prevent people who can’t afford to lose money from doing riskier stuff like LC investing. Instead, look into Vanguard (and read books and articles on this blog about stock investing), and buy index funds instead. No high income required!

      • Steven August 25, 2014, 8:14 pm

        Thank you for the info. I make decent money (at least to me) roughly 2k/month net. My car is paid off and my mortgage and taxes are only about 520/month and I only have just over 10 years left on mortgage so I’d like to start getting my nest egg bigger so I can retire by 50 and do little side jobs and enjoy a little life instead of working like a zombie forever. Again thanks and I will get more reading done.

  • Dragline August 27, 2014, 2:14 pm

    Yes, I’m not sure when that $70K income requirement snuck in there, but a relative I recommended LC to got caught by that recently. I telephoned them about it, but they feel like they have to abide by it. I think they want to avoid the legal troubles that Prosper got enmeshed in a few years ago.

    Since I haven’t published any stats in awhile, I can provide these, which may be of interest:

    Total number of loans invested in: 3405
    Issued and current: 2144
    Awaiting issuance: 66
    Paid off: 1081
    Charged off (defaulted): 89
    Currently in grace period or late: 25

    I’ve also sold dozens of loans over the years, but don’t have an exact count.

    I’ve been investing in LC since 2009. I used to have mostly A and B loans, but my current loan breakdown is 40% B, 40% C, 14% D, 4.5% E and the rest A, F and G. I’ve tentatively concluded that there’s no point in investing in anything with a rate below about 12%, because I can’t get default rates below 1-2% whether the loans are As or Bs.

    Weighted average rate is 14% (i.e., before fees), net annualized return is 11.82% and return adjusted for lates/defaults is 11.36% using the LC assumptions and 11.27% using my own, which are a bit more conservative. Using the “understanding your returns” link that LC provides, it shows that the average age of my portfolio is about 15 months and its yield is about 2% better than the average LC investor with a similar portfolio.

  • Lisa Fowler September 19, 2014, 3:19 pm

    We are on the other end of the spectrum. My husband took out a loan with Lending Club about a year ago, and it helped us through a hard time. Now, we are looking to borrow a larger sum of money in order to begin getting our massive debt under control. We both have good paying jobs and are still climbing the ladder. However, on my journey to obtaining my doctorate degree and landing a job as an Assistant Professor, we incurred a huge amount of debt. We would love to borrow $100,000 and pay $1,000 a month for ten years. This would help us consolidate our unsecured debt and begin working on my student loans. Do you have any idea how we could go about borrowing this large amount? The banks say our debt ratio is too high. However, we both have good credit and pay our bills on time. We just need to lower what we are paying out monthly in order to breathe a little from month to month.

  • Scott Crosby August 6, 2015, 4:05 pm

    Apologies if this is overly promotional, but I think it’s germane.

    I’ve always thought LC loans would likely go bad en masse in a 2008-like scenario, so what about collateralized loans?

    There are a few real-estate-backed peer-to-peer lending platforms that generally offer a somewhat lower rate — 7-9% perhaps (still pretty great) — but that are backed by loans with fairly conservative LTVs, like around 70%. So in theory there’s real recourse if loans go bad — the lender forecloses (on your behalf).

    Realtymogul.com is one such provider. Another is a venture-backed company started by my brother and some cofounders called PeerStreet(.com). My brother cofounded what is now Google Analytics, so he’s not a complete joker. Full disclosure: I’m a small investor in the company.

    Apologies if this is tacky or was covered elsewhere, I didn’t see it. Seems relevant.

    • Ben August 6, 2015, 4:22 pm

      Curious as to what the minimum investment is in the two you mentioned, RealtyMogul and PeerStreet. The downside may be less diversification than what you would get investing in thousands of notes through LC.

      Regardless, I can’t try them out yet since I’m still not an accredited investor. A few more years!

      • Scott Crosby August 12, 2015, 4:03 pm

        Hey Ben,

        PeerSteet’s minimum investment is $1,000, and it appears RealtyMogul’s is “as low as $5k” though I saw $10,000 in the signup process (https://www.realtymogul.com/how-it-works).

        For now you do need to be an accredited investor to put money into either of these, but there are subtleties beyond that, one of which is whether the investment vehicle is a 506B or 506C, per the SEC. Here’s a chart showing whether you need to prove your accredited status (bank statement, W2, etc.) or just say “oh yeah, I gots the money.”


        PeerStreet is a 506B, meaning you just have to attest to the fact you are accredited. RM’s investments are apparently either a 506B or 506C depending on the offering.

        One other difference between PS and RM is that PS is debt only, whereas RM is debt or equity.

  • Raymond November 13, 2015, 9:30 pm

    I did a simple analysis of MMM’s LC Investment. It’s in the following shared folder of my Google Drive. The estimated Adjusted Net Annual Return after service fee is approximate 9%, assuming a flat Weighted Average Rate of 20% of MMM’s LC account over last two years.


  • Keith May 13, 2016, 10:27 am

    Now that the Lending Club investment experiment is further in the rear view, are you still seeing the returns that you expected? What are your thoughts with the loss of the CEO and the erosion of the companies stock price?

  • Mace April 3, 2017, 6:35 pm

    Mr. M. Moustache,
    I’ve only just learned of the Lending Club and found your site but it has been a few years since the last post. Do you have an update on the Lending Club? After 4 years, are you still getting your average 12 – 13%?


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