The Lending Club Experiment at One Year – the Gravy Train Grows Crowded

It has been over eleven months since I opened my Lending Club account and started experimenting in the field of peer-to-peer lending. While I have been providing monthly updates on my little  headquarters page, many have asked that I write a new post to summarize the results. So here’s the summary:

With an annualized return over 17% to date on a $33,000-and-growing balance, I am very pleased with the results so far. And although I expect the return to drift down to about 12% over time, everything I’ve learned to this point tells me this is a valid way to earn higher returns in today’s low yield environment. Here’s my up-to-the-minute account summary:

Returns-to-date (including late/default status)

Returns-to-date (including late/default status)

The default rate has been fairly low so far and thus I expect it to increase if we are to eventually end up at 12%: assuming all possible late loans on the books today end up in default and more come in indefinitely at the same pace, we would still end up with an over 13.5% return. See the HQ page for more on the trend.


At the moment, the conditions that allowed me to get this great return are no longer so easily available. The supply of investors has grown more quickly than the pool of borrowers, as Lending Club freely admits in this April post on their website. A Wall Street Journal article on August 6th noted the same thing, and this Bloomberg Story has a nice picture of the various big businesses swooping in on the action.

The situation persists, even as they crank up loan volume: in April as they wrote that post, they were excited to pump through $140 million in loans. By last month (July), the number was already up to $173 milllion. The company’s loan volume since 2007 totals over $2.3 billion, with more than half of it in the last year.

You can see the effects of this directly in my own results. Remember the good ol’ days, when I was able to deploy my first $10,000 within a day or two? I filtered notes for the higher-yielding C through G categories along with a bunch of other restrictions* and still got a screen like this:


208 notes?! Must have been nice!

If I log in right now and attempt to pull up results with the same filter, this is what I get:


Today, only ONE note met my criteria

One measly note. And it’s not even a “debt consolidation” loan – the type I prefer to fund.

So where does this leave us? In a slightly less cushy place, but still a good one. Let’s review the facts:

  • I believe that Lending Club is still a good investment opportunity, just not quite as lucrative as it was a year ago. The notes that are most readily available are the safest ones – grade A and B, with interest rates of 6-9%. Looking in the system right now, I see 32 of these. It’s easy to invest a few hundred dollars a day. Just impractical to deploy a portfolio of $10,000 or more unless you have a lot of time on your hands.
  • You can always compete for the tasty scraps: digging through their website, I see that they release a new batch of notes at 6AM, 10AM, 2PM, and 6PM Pacific Time every day. With a speedy mouse finger, you can still get the higher-yield notes rather than settling for the safer but blander options that get left behind.
  • The company is working to expand as quickly as possible. For Lending Club, this is an embarrassment of riches – they have a rapidly growing pool of borrowers on one side, and an even hungrier pack of investors on the other. Although I’m only making things worse with articles like this**, it is still worth reporting on an interesting situation. They just need to advertise more on coupon and shopping blogs, and less on those targeted towards early retirees.

Although the situation represents a slowdown for investors, the opposite is true for borrowers. Due to the number of people that want to lend you money, borrowers can now expect lower interest rates and faster funding. If you have good credit and find yourself in the “A” category of Lending Club’s rate chart, this could be an opportunity to instantly acquire up to $16,000 at a rate of 7-9%, then use it to displace other more expensive debt.

As you move down into lower credit scores, you’d pay higher rates, and although I’d invest in your notes, on a personal level I recommend moving back into your parents’ basement before resorting to borrowing money at 20% interest unless for a very short-term emergency.


I’m planning to keep my account open for the long haul, and keep reinvesting the roughly $1000 per month of principal and interest payments that it now generates into new notes. I also expect Lending club to be able to fix the supply issue in the long run, and I will report back to you if I see this happen.

Still interested in following along? You can dig in with your own investor account here.

On the borrowing side? You’ll want to use this link.

Other Articles in this series:
The Lending Club Experiment – Part 1
The Lending Club Experiment Four Months Later
Lending Club Profits and your Taxes
The LC Experiment Headquarters Page


The Investor and Borrower links above will benefit this blog if you use them and end up creating an account for yourself (and thanks). 

*Here is my own lending club filter, developed after research on lendstats.com and bravenewlife.com:

– Delinquencies last 2 years: 0
– Home Ownership Mortgage+Own
– Exclude Loans already invested in
– Minimum employment 4 years
– Interest rate C,D,E,F,G
(this is a higher risk, higher return strategy that the statistics seem to suggest will work much better on average)

**Comparing their news releases to my own referral link stats, between 1-3% of LC’s investors are directly from this blog. Investors from MMM outnumber borrowers by about 100-to-1: Go Mustachians!

  • rjack August 26, 2013, 3:33 pm

    Hmmm…I’m on the investing side, so I wish for a return to the good old days of more borrowers than investors. Does anybody know if Prosper is experiencing the same thing?

    • Nick Loper August 26, 2013, 7:09 pm

      Hey rjack, I’m experiencing a similar problem on Prosper. The most attractive notes are snapped up within seconds of hitting the site. It’s been frustrating the past few months to try and grab a decent portfolio, sometimes even tough just to reinvest the cash flow my current Prosper investments spin off.

      I’m happy to see the growth in P2P lending but without a big influx of borrowers it will be difficult to “scale up” my investments and maintain the highest returns.

    • retirebyforty August 27, 2013, 10:01 am

      I’m with Prosper and it’s getting harder to find good loans there too. My cash is building up and I had to increase the loan amount to get the money reinvested. The number of loans seem to be going down as well. It seems to be about half of what I saw last year.
      I wanted to open an account at Lending Club, but then I found out that I couldn’t (wrong state.)

    • Giddings Plaza FI August 27, 2013, 11:18 am

      rjack, I agree–we need more borrowers! I invested $10,000 in Lending Tree a couple months ago (I’ll blog the results when I hit my 6-month anniversary). So far so good with returns, but the pickin’s feel slim.

    • Debt Blag August 27, 2013, 11:19 am

      Yeah, it looks like it. I guess we can only blame low interest rates in other places. People seem to treat Lending Club and Prosper as interchangeable for now :)

    • The Wealthy Accountant August 21, 2016, 11:39 am

      rjack, it sounds like MMM will update his posts on Lending Club. Back in May when the CEO was ousted I decided to stop reinvesting and started pulling money out. Where there is smoke there is fire. It looks like the fire has started to burn hot. On my blog I commented on Lending Club and Prosper results in a footnote published August 20th. Little did I know the other foot was dropping the same day. Good luck.

  • CityGirlCountryBloke August 26, 2013, 3:47 pm

    Wow. With you posting this follow up after a year, it made me realize that I’ve been following you for over a year now! I have yet to be in the “Investor” position but I do enjoy reading about your progress with this endeavor. It still seems to be beating the good ole stock market and mutual fund route so you must be doing something right!

  • Buck August 26, 2013, 4:26 pm

    Thanks for the report and documenting your filter criteria. I’ve been looking at getting into this recently and never really knew where to start when it came to choosing loans.

  • FI Pilgrim August 26, 2013, 4:26 pm

    Those are still some nice returns for such short term investments. Thanks for the thorough review update!

  • Net Worth Snowball August 26, 2013, 4:27 pm

    Great timing on this article MMM. I too have been frustrated with the lack of juicy Lending Club loans available in the D-G range. Lately, my filters also provide a measly 0-2 loans meeting my criteria (and they’re often appoaching full-funding requiring a fast trigger finger) where I used to routinely have 10+ loans to sift through.

    Thanks for the tidbit about the release times of the new note batches. I will definitely use that information to deploy my outstanding capital.

  • Nicholas Sarwark August 26, 2013, 4:51 pm

    I just started in May, after reading your posts about Lending Club and Brave New Life’s experience. I’ve noticed in the last month that D-G notes are gone very quickly and it’ll sometimes take me a few days to get $200 invested.

    Lending Club is still a very small part of my overall portfolio, but it’s heartening to see the money roll in every couple of days, rather than quarterly.

  • Pretired Nick August 26, 2013, 5:03 pm

    Wow, that is very, very interesting that there aren’t enough borrowers to meet your criteria. I’m not sure if that says more about the fact that there is nowhere to put money these days or whether there are too many places to borrow money.

  • AquaFX August 26, 2013, 6:03 pm

    Credit card companies have been very aggressive with 0 interest for 14-18 months at least offers I have been getting. Also I have seen local banks advertising about taking equity out of your automobile of all things ( I would never recommend that), so everyone is scraping for people to borrow but at the same time I think alot of people are wising up and ditching loans and credit cards and going cash only.

  • Lisa Smith August 26, 2013, 6:47 pm

    Thanks for the great article. I use lending club, lately another frustration has popped up. When I do manage to get some loans with higher rates, only half of them are funded. Lending club sends me a email after my transaction saying that only half of my loans funded. It makes it difficult to build up a portfolio. But a great option when you can get higher rate notes.

  • Free Money Minute August 26, 2013, 6:47 pm

    I have $500 sitting in Prosper.com’s website waiting to invest. I would be curious if anyone has had any recent experience in this competitor. I hope to document this on my blog when I get some time to put something together.

  • Micro August 26, 2013, 6:58 pm

    I only invest about $100 each paycheck but I have definitely noticed a dip in the notes pool. I used to have my pick of C-F grade loans. Now I am lucky if I can get a C. I am willing to settle for some B grade loans if they have a decent interest rate. I do hope though they can increase the supply of loans without compromising the quality.

  • Alex August 26, 2013, 8:09 pm

    Another witness here, I emailed LC about this problem just yesterday. It has been a challenge just trying to reinvest my accumulated interest, as almost no notes escape my brutal filters. Unlike others, I am not willing to settle for the A/B loans, so I’ll be patient with my next round of funding.

    We can only hope they do not drop their lending standards to attract more borrowers…

  • Rachel August 26, 2013, 10:07 pm

    I’ve been planning to put some investments into play this month, and this post inspired me to go to The Lending Club and open up an investing account. Something you might want to mention, MMM is that one of their waivers makes you confirm that you’re making over $70k a year, and that you have a net worth of at least $70k. For some of us, unfortunately, that means that we can’t take advantage of this great investment opportunity.

    • Mr. Money Mustache August 26, 2013, 10:39 pm

      That’s a good point – US securities law requires that the company ask you to affirm that these things are true. There is no follow-up or verification, but they have a good point: don’t risk a large percentage of your wealth – whatever level that might be – on a newly invented investment type like this.

      • FitStash August 28, 2013, 10:10 am

        It might be important to note that the $70k limit is only in place if you plan to invest more than $2k (or somewhere around there). At least that’s what the fine print said when I made my account last year.

        • Todd August 28, 2013, 5:01 pm

          I would add that it’s not a good idea to be investing in this unless you can invest $5k or more since you need a large number of loans to reduce the risk. As someone who invested $2k in Prosper when it started, I can tell you that the results were terrible. Spreading your money across as many loans as possible will yield the best results.

  • My Financial Independence Journey August 27, 2013, 3:54 am

    This is an interesting follow up on your initial investment in Lending Club. The two things that concern me at the moment about P2P lending are:

    1. How will P2P fair in a recession. Back in 2008, I recall Prosper and Lending Club experiencing a spate of defaults. Which made sense given how many people were losing their job and thus their ability to repay their loans. I know that both services have gone though a number of changes since then, but would like to see those changes field tested before I am comfortable investing large amounts of money.

    2. As you pointed out, as the number of lenders grows it becomes harder to deploy your money. I would also expect loan yield to start dropping as more lenders compete for loans.

  • Ben August 27, 2013, 5:47 am

    Glad to see this post as I’ve been noticing the same thing over the past few months. I’m glad I got the bulk of my money in when I did as it’s difficult now to invest the way that I want. Used to be that I could add new money onto the site and reinvest my interest and find no less than 10-15 notes meeting my criteria. Now, I get no more than 2 and usually 0. I have to check the site several times a day now just so my money doesn’t sit interest-free.

  • Jimbo August 27, 2013, 6:08 am

    I think the solution for LC would be to come to Canada! The most indebdted nation in the world (per capita) or at least in the top, a housing bubble in the early stages of implosion, and a slowing down economy due to worldwide lower demand for resources. The perfect storm.

    I wish I could feel empathy for spendypants, but sadly, I can only see the investment opportunities…

  • Ryan August 27, 2013, 6:21 am

    I’ve been suspecting this, MMM. I am an avid Lending Club lender. I’ve been using the same filter for a few years, and even up to a month or two ago, the filter would highlight about ten great C- G grade loans on a given day out of an original selection of hundreds. Now I’m lucky if I can find one! But I’m not going to quit any time soon.

    Thanks for letting us know about the loan posting times. I assumed there were times they released loans, but didn’t know when.

  • Jane Savers August 27, 2013, 6:22 am

    The stuffy Canadian government won’t allow peer to peer lending services.

    Our mortgage rates just started going up and HELOC rates have risen recently and the banks have tightened up the lending criteria. If this is happening in the USA it may drive more borrowers to peer to peer lenders.

    We have a group of businessmen in town who have banded together to loan money privately to other businesses and to hold mortgages. Perhaps peer to peer lending without the middle man is another option?

  • EL August 27, 2013, 6:47 am

    WOW 17.3% return on investment, that’s insane. Even if it is getting harder to find the higher yielding loans, it makes sense to keep adding funds to this account with returns like that.

  • mucgoo August 27, 2013, 7:05 am

    The UK version (Zopa) is paying 4.5% on 5 year A grade loan and our inflation is running higher than the dollars.

  • Holly August 27, 2013, 7:12 am

    I live in Indiana where we are only allowed to buy notes on Lending Club’s trading platform, or secondary market. Does anyone have experience with this? I signed up for Lending Club, put money in an account, then realized that I wouldn’t be able to originate loans and took my money back out.
    If anyone buys notes on the secondary market (by choice), I would love to hear about it.

    • CanMan August 27, 2013, 7:09 pm

      SC resident here with the same problem, but I went ahead and decided to take the plunge. After finding a couple of things that I didn’t like I decided to only invest 5K instead of the 10K that I had originally planned. I’ve only had my account for 2 months, but here is what I’ve found so far:

      1. the net annualized return calculation that you see when you log in does not take into account the purchase price of the note on the secondary platform. It only takes into account the interest rate on the loans, so your performance could you better or worse that what is shown (probably worse). You can calculate it yourself but you will have to use your trading history from the trading platform (foliofn).

      2. Buying notes is time-consuming. You can only buy and review one note at a time. There is no ability to pre set an allocation for your funds. This is one of the things that made me only put in 5k.

      3. Again buying notes is very time-consuming. The filters on foliofn are terrible. They are a disgrace to spreadsheets everywhere. You can really only filter on interest rate and loan status. All other parameters (yield to maturity/discount/price) you can only sort. This makes finding notes that much more difficult. I believe there are secondary websites that have a better interface for a price, but I’m not willing to try that out.

      4. You can buy new notes…There are many people who will receive a brand new note and turn around and sell it on the trading platform for a ~3% increase thus locking in an early 2% return, after a 1% commission and also providing fresh new notes to the trading platform.

      5. One good thing is that you can see the payment history of the notes that are being sold. You can look for notes that have all on time payments for just about as many months as you would like. The only problem with that is that the people who are selling them know that they are good notes and therefore ask a premium for them leaving you with less return than you would have had, but at the same time there is less risk involved with this.
      I actually got fed up with it taking so long to review and purchase notes that I contacted lending club with my complaints they said:

      “We are aware of some of the limitations on the secondary platform operated by FOLIOfn, and are currently working on several projects to improve our users experience. While we do not have a set date when we expect these changes to be completed, our goal is to make the experience on the secondary platform as similar as possible to that of the primary platform. “

      I for one will not be investing any more money than i already have into lending club until they fix the issues outlined above on the secondary market place. I did however tell myself that I would deal with the current interface for 1 year. If it isn’t fixed by then, I’m out.

      Good Luck.

      • Holly August 29, 2013, 6:56 am

        That’s pretty much what I experienced. I had planned on purchasing a lot of the smallest notes possible ($25) starting with 5K. Once I realized that I had to research and buy each note separately, I got overwhelmed!

        Hopefully they will create a user friendly interface that will allow us to buy more notes at a time.

        • Mr. Money Mustache August 29, 2013, 10:49 am

          I don’t research the notes at all – just filter them, click the “select all” box, and click “Buy”. The benefit of trying to do a psych profile on each borrower would be outweighed by all the time I spent on it.

        • Sarah August 31, 2013, 11:28 am

          I’ve been using Interest Radar for a while now… it’s a little tricky to learn, but they have a really great set of filters you can use to search for and buy FolioFN notes. You can create and use custom filters. So I can search for, say, brand new notes with >17% interest with 700+ FICO that have an employment history >5 years with no public records and no delinquencies with a note price of $25.75 or less. As you can imagine this saves an enormous amount of time compared to the pathetic filters on the Folio platform.

          It does have an annual fee, but you can try it free for 30 days and see if you think it’s worth it.

      • Chuck August 31, 2013, 8:12 am

        I’m in Texas and have the same experience and dissatisfaction with the foliofn platform. I’ve been using it since Jan 2013 and put up with the hassles because I was able to achieve my goal of an 11% return portfolio. However, the last couple months have been difficult to find good notes. I’ve made the mistake of relaxing my criteria so now my return goal is beginning to suffer from defaults. I made the decision this month to pull out of the secondary market and wait/hope that Texas allows the full LC platform and then try it again.

    • Anthony September 6, 2013, 7:26 am

      I buy loans on the FolioFN secondary market.

      As others have noted, the automation options are not good, but they work well enough for what I want to do and at the small-time levels I’m doing it. My max account balance was about $6k.

      There also appear to be some bugs – try screening for “never late, 12 months”, sort by remaining payment, and you will see notes with more than 12 payments remaining.

      Re: notes being priced at a premium – remember that the seller pays a 1% commission on trades. Thus there is a bias towards not pricing loans at par. When I sell notes, I often use a 2%-3% markup (I do not “calculate” my markup to target any special interest rate for my counterparties). I have rarely had an issue with selling my notes at that markup – they are usually gone within the week. Some people would say that I am certainly underpricing them then.

      There is a significant bias towards trading smaller loans. $25-50 loans move much more quickly. Even a $100 or $250 loan will often sit for days, and “whales” of $1000 or more frequently seem to age out and not trade at all. I suspect that like me, there are a lot of small-time players with less than $25 in cash who are looking to pick something up for the $15 they have on hand or whatever. This can be good for portfolio diversity, but it’s interesting and possibly significant to originators who might want to sell.

  • brkr12002 August 27, 2013, 7:29 am

    S&P 500 return was about 20% over the last 1 year for less work involved.
    Like economics 101 says, if there is a profit to be made out there, more competition will move in until the profits are thin.

    • Mr. Money Mustache August 27, 2013, 10:42 am

      Right – but the S&P ‘return’ was due mostly to P/E ratio inflation, rather than true growth in the value of the underlying stocks. Would I be excited if the quoted value of my LC notes went up by 50% on the FolioFn trading platform? Probably not, because I’m holding the notes as a source of fixed income.

      With stocks, the sticker price gains could just as easily be erased in the next 12-month period. Unless you’re a short-term trader, the real value of stocks is in the earnings of the underlying companies (and in the long run, the eventual dividends they pay you as the owner). If 10-year-average EARNINGS had gone up 20% in the last year, or the dividend yield were 20%, you’d have a good point.

      P2P notes (or other bond-like instruments) are different because they provide an ongoing return – you still have the note, AND you have your 10-15% return.. year after year if you reinvest. Thus it is more relevant to early retirement than watching a fluctuating stock market.

      • MoneyAhoy August 28, 2013, 5:08 am

        I agree with MMM – the 17% return is MUCH lower risk than the stock market. Thus you are getting nearly the same about of return for a fraction of the risk involved. A clear winner in my book!

        • Mr. Money Mustache August 28, 2013, 1:26 pm

          Hmm.. I wouldn’t say that we know enough to assess the risk of LC yet. But I guess if you define “risk” as “chance that your portfolio value will go down below a starting value in a given 12-month period”, LC would be safer.

          Really, that’s more of a volatility measure though. I think of Risk as “chance that company will go out of business and you will have nothing”. In a stock index fund, that is almost zero percent, because it would require the human race to stop using money. With a single investment, all it takes is the company going out of business with a big scandal. Still a low percentage, but maybe closer to 0.1-1.0% instead of 0.000000000000000000001%

          • MoneyAhoy August 29, 2013, 6:50 am

            Good point – when I was speaking of risk I was thinking more of volatility and losing some of your money. I wasn’t considering that all of LC could go bankrupt and you could lose everything.


          • Dan June 10, 2014, 10:11 am

            Yes, but if LC goes out of business, you still own your notes and can trade them on foliofn. As far as collecting interest goes, I’m sure there’s a collection agency out there that would love to step in and buy the rights to their platform and broker payments. Honestly though, comparing a stock to lending club is apples and oranges. Rather, it would be like comparing LC to a Stock Exchange. If a stock exchange commits a scandal, they’re not going out of business because people don’t have a vested interest in the exchange, but in stocks. Yeah, they may take a hit, but it wouldn’t be significant. Just look at the people regulating and running the financial systems in the US… noboday cares about scandals any more, just as long ast they get paid.

  • Nihongo Dame Desu August 27, 2013, 7:48 am

    I’ve found the change to be very sudden. I’ve only been investing at LC for about 4 months, and the first 2-3 months I had no troubles at all finding great loans that met my criteria (D-F and few other restrictions). Now, I’ve had money sitting in my account with no where to put it. I used your tip about the timing of released notes and just scored 5, so thank you for that. For the time being, however, I won’t be adding new money to my account so my only new loans will be reinvestments of loan payments, and if things don’t improve, I might start taking money out at some point in the not-to-distant future.

    It seems like LC aggressively targeted lenders via blogs and probably other advertising, and they need to now do something to stir up business on the other end.

    Hopefully LC will advertise effectively and this will all iron out. If not, I’m happy with the ~1% of my portfolio that is in LC, and I’ll have to move on and find another gravy train for the future.

  • Steve_G August 27, 2013, 7:48 am

  • Bryce August 27, 2013, 8:35 am

    I hope that’s not a sponsored link to the borrowing side; that seems antithetical to the goal of your blog, MMM.

    • Mr. Money Mustache August 27, 2013, 10:32 am

      Alas, Bryce, it is a sponsored link as mentioned in the footnotes. I am ashamed :-)

      Seriously though, I try to walk the fine line between having this blog earn income when describing things I use myself and are actually good for readers, and not letting money influence the reviews. I do this because there are REALLY good things I can do with the firehose of extra income that do not involve buying more luxuries for my own family. Time and the readers will tell if I can succeed.

      As for the borrowing link – I think Lending Club can be a good tool to refinance debt if you’re stuck between a brick wall and a barking pack of credit card companies currently charging you even higher rates. But it is truly insane to borrow money just to buy more stuff, which is why I never personally fund the loans with names like “POOL”, “TRUCK”, “KITCHEN RENOVATION”.. some of them at 20% interest. The returns might be there, but that type of borrowing is just to far off in La-la land for my own mind to get on board with.

      • holliso September 4, 2013, 2:13 am

        I’m in for a few thousand, 205 “in Funding notes”, nothing issued yet, I check several times a day. Thanks for your site, a friend of mine pointed me to it knowing how I like to dabble in option trading. I now call myself mini-money-mustache to that friend, cause well, i’m not big and I have a small mustache haha :)

  • No Waste August 27, 2013, 8:43 am

    I had a feeling that those sweet, sweet returns would eventually crowd the game.

    On top of that, the economy is improving so it wouldn’t be surprising to see a decline in demand for funding as well.

  • Self-Employed-Swami August 27, 2013, 8:55 am

    I wish we had Lending Club in Canada!

    • FI40 August 27, 2013, 9:29 am

      I wish we had it here too, it sounds like fun. I’d try it with a bit of money. Although I can’t help thinking if it sounds too good to be true…

      My concern would be that you see market-beating returns right up until the next financial crash or recession. Then people can’t pay back their loans and default on you. I just think all their default data is from relatively “normal” times, so maybe it’s a bit skewed upward.

      Still worth a shot though in my book, for the experimentation and fun side of it as much as the making money side.

      Hey, why not do a post about Kiva? Not an investment but it’s a really cool charity.

      • M August 27, 2013, 6:18 pm

        I loooovee Kiva! It’s the only gift each of my family members gets for Christmas. I watch my sponsored folks work hard (and creatively) to improve their lives. And the default rate is awesomely low.

    • Christine Wilson August 27, 2013, 1:15 pm

      Cry! I wish we had it here in Canada too!

  • Insourcelife August 27, 2013, 9:31 am

    Once the word gets out about any investment that can produce great returns in this low rate environment hoards of people will push down those returns to the point where they are not great. That’s what’s happening with LC and to be expected, especially when all financial bloggers are touting the gravy train :)

  • retirebyforty August 27, 2013, 10:04 am

    17% is very good. I’m getting 9.5% at prosper and I would like to increase that a bit.
    It’s hard to find good loans now though. Another way to make money is to just turn around and see your loan on the secondary market. I haven’t tried it yet, but it sounds like easy money, but a lot of time.

    • Mr. Money Mustache August 27, 2013, 10:26 am

      Good point about the secondary market (the trading platform known as FolioFN). Right now we have an artificially restricted supply – too many investors, PLUS there are many US states where you cannot fund Lending Club notes yourself, but you can buy them second hand through FolioFN.

      I’d expect this shortage to boost sale prices in the secondary market, so there would be short-term money to be made as a “Lending Club scalper” – scooping good notes and reselling. The only reason I haven’t done this with my account is that I’m trying to focus more on the idea of long-term and more passive investments, rather than trading – with this being an early retirement blog and all.

      If anyone has been making great profits with this approach, let me know and maybe we could do a one-time story with a bunch of details on exactly what you did and how much you made.

      • Ree Klein August 27, 2013, 11:32 am

        This sounds so familiar…it echos the 2007 sub prime mortgage meltdown. I wonder if there are buyback clauses in the contracts associated with the secondary market deals. If you made a bad lending decision, sell the note and the borrower defaults, are you going to be held accountable?

        I am very leery of these P2P deals. I understand your point about building fixed income streams, and you are likely much better at assessing risk. But what about the majority of the people dabbling in that world?

        I see a mini meltdown coming for P2P lending. It’s not for me!

      • Ryan August 27, 2013, 12:47 pm

        There are several folks on the lendacademy.com/forum that have made money with FolioFN. Some swear by selling the notes before they go into default. There are many different strategies that people are using to get high rates of return. There is a wealth of information on that forum for anyone wanting to learn more about p2p-lending.

      • Brian August 27, 2013, 1:16 pm

        FolioFn is a very different Lending Club experience than what I see you describe in these articles. What another blogger said really sums it up: “Notes are on the secondary market because someone doesn’t want them. You should think about why.”
        “Scalpers” need to charge a premium of more than 1% over the note’s value because LC takes a 1% fee from the seller. Most people try to pick up notes at a discount.
        Plus, the filter tools on the site are abysmal, which makes finding attractive notes a *very* time consuming task.
        I spent about a year with LC, and was unable to make enough money to justify the risk involved with peer to peer lending, and certainly not as much as we see MMM making in a few minutes of spare time a week.
        That being said, I too would like to see a guest article from someone who has had a good experience on FolioFn.

        • Dragline August 27, 2013, 2:30 pm

          Yeah, I don’t know why they don’t get a decent search function on Folio — there might be some things I would buy, but I am not going to go through every description manually! It’s not really very useable for a buyer in its present form. I’ve used it more for selling.

  • Locus415 August 27, 2013, 10:06 am

    Got into Lending Club on the investment side from the Bigger Pockets Forums about a month ago. So far, so good. I did email in a series of questions and got an actual call back from a real live person later that day to go over the questions point-by-point. Who does that? LC does. The issues I have with LC beyond the borrower/investor skew is the amount of loans I do fund that get kicked back out a few days later and I have to find new ones all over again. It has been a month and I am still only 2/3 locked in on loans. LC said they are working on an auto filter that auto purchases loans that fit your criteria so that would hopefully solve that problem. I also take issue with the lack of search filters for Folio which they are also working on but it is going to be a while (1+ years). But hey… I am up almost 1% on the account in less than a month and that’s with only 2/3’s funded. I am gonna need some more stash wax!

  • Brad August 27, 2013, 10:35 am

    It’s amazing how dramatically this has shifted in 2013, and it’s very frustating as an average retail investor to try to deploy any significant amount of capital today. I’m glad I got in with about $12k back in January, or I’d be about ready to give up by now.

    I’m sitting at a 15.37% return, so not quite as good as yours, but I’m still quite happy with it! I invested in a number of “B” grade loans at the beginning, which is dragging down my % at this point.

    My concern with LC is that they’ll lower their review/underwriting standards in an effort to get more loans on the platform in order to fill investor demand. This would be almost impossible to detect in the near-term, but you’d see a big increase in defaults in the medium/long-term.

    You’ve referred 1-3% of all LC investors?? That has to be thousands if not tens of thousands of people!?! That’s amazingly impressive!

    • Mr. Money Mustache August 27, 2013, 10:56 am

      Haha – no, their website said there were only about 57,000 investors involved at this point, and this blog was somewhere in the 600s or 700s officially, plus whatever number might have signed up on their own without using the sponsored links.

      I have a feeling that they won’t lower their underwriting standards, so much as lowering the interest rates for the approved borrowers. After all, if there are investors out there willing to fund a loan at 12% interest, why set it artificially at 18% to create even more demand?

      The lower interest rates would automatically pull in more buyers. But the risk would be triggering a sub-prime mortgage situation: we investors start to assume that all notes are fairly safe, so we buy up D-G loans ones even at low rates.. and eventually lose money in a blowup down the road. There’s a reason you need to charge 20% interest to a person who has a history of not paying bills. Because people like this (statistically) tend to repeat the behavior, and you lose the whole principal of the loan, which wipes out the profits of a bunch of other people who are still meeting the payments.

      • Brad August 27, 2013, 12:33 pm

        Okay, that 600-700 number makes a lot more sense! I assumed based on the $2.3B in total loans LC originated that they had to have a few hundred thousand investors; I knew your reach was vast MMM, but when the math came out to thousands of referrals, that seemed like a very large number!

        You described a similar situation to what Prosper had in what I refer to as their “Wild Wild West” days. This was going back to the very beginning, around 2005, and they had a system where you could bid on the interest rate. So you had unsophisticated investors (myself very much included) bidding down the interest rates on loans for people who were never very likely to pay them back. Many people lost money and this helped lead to a shutdown of the site for quite some time.

        • Dragline August 27, 2013, 2:44 pm

          Yes, that was a painful and irritating experience (early Prosper). It was way too directed at encouraging bad borrowers to sign up. I remember you could “sponsor” borrowers and get a cut. It was crazy.

          LC has always been more lender-friendly, but I have had a hard time finding suitable loans recently, too. In fact, there are only about 60 available total at a time these days and usually only two or three that I would want on any given day.

          I have been on LC since 2009 now, presently with 1349 current loans, 10 late, 695 fully paid off and 54 defaulted. My stated return is at 11.55%, which I have been happy with considering over half of my loans are B-rated and I used to have a lot of As. Problem with the As is that they default nearly as much as the Bs!

  • Debt Blag August 27, 2013, 11:18 am

    Wow. That is terrific. I’m surprised that things are getting better as more people join the website. One would think that having more peer lenders would squeeze margins for everyone, but it looks like it’s giving you a better pool of people to diversify among.

    Congrats on your continued success!

  • Noble Anarchist August 27, 2013, 12:13 pm

    Very interesting. I tried to start up an account with them after reading your older post, but as a “high-risk” Canadian :), they wanted a minimum of $100K deposited into it.

    Too rich for my blood.

    I wonder now, with it being more difficult to actually invest in anything, will they loosen up that policy?

    Would be nice for us loose canons up here!

  • Ryan August 27, 2013, 12:15 pm

    Instead of logging in directly to the LendingClub site there are many other tools out there to help you invest in some of the top notes (based off of the owners calculations) I’ve used both InterestRadar (free for 30 days and then with paid subscription) and p2p-picks (currently in beta). I’ve outlined how I’ve used these tools over on my blog. I’ve been able to invest all of my available cash by logging in at the release times – although I have a much smaller portfolio.

  • Mr. 1500 August 27, 2013, 12:20 pm

    I’ve been on Lending Club and Prosper for over 3 years now and have noticed the same thing. It’s very difficult to be an investor lately. It’s a bit disappointing because I had dreams of 100K in peer lending accounts that would generate a very good chunk of my retirement income. That would be difficult to do now.

    Rumor is that Lending Club will soon release an automated investment tool soon similar to what Prosper has now. I fear that will make things worse as that seems easier than logging on 4x/day.

    One observation though is that both services have barely scratched the surface. I’ve talked to a lot of folks about peer lending and I have yet to meet another family member or friend who has ever heard of it (they all initially scream “Scam!”). Despite the lack of household name recognition, Lending Club is doing > $200,000,000/month in loans. Just wait until they are a household name.

    I’d also like to see both services expand the services. How about collateralized debt like mortgages? No idea how that would be structured, but it’s fun to consider the possibilities.

    • Walt August 27, 2013, 5:27 pm

      For whatever it’s worth, I had a much higher default rate with the Prosper automated system than with ones I picked by hand. Never again.

      The automated system doesn’t care if the borrower bothered to explain what’s going on. It just goes by the stats. I won’t loan if they didn’t explain.

      • Mr. 1500 August 27, 2013, 9:19 pm

        So far, I’m batting 100% on the automated loans. However, I haven’t used the automated option for that long either, so It’s not a good example.

        The issue for me is that all the loans are bought up so quick, I don’t think that I’d get any if I didn’t use the automated system. I just glanced at my account and I have $200 that the automated system can’t even find a way to invest.

  • WalletEngineers August 27, 2013, 12:46 pm

    Thanks for the update, I have read through your initial posts about P2P lending and have been thinking about getting in the game myself in the near future. I know a lot of people who have used this service on the borrower side but no one on the investor side at this point. With the market shifting as it has over the past year what would you suggest as a minimum for someone looking to start investing in P2P? I am currently still focusing most of my funds into saving for a single family home but wouldn’t mind taking a chunk and getting one of these accounts going. Thanks!

  • MsMariaT August 27, 2013, 1:06 pm

    I have taken what I can of your advice after following you for a few months. After doing my own research, I found your advice to be sound so I thought I’d implement some of your strategies on a much smaller scale. Set up a Mint.com profile to get my family’s spending on track, and then with a small portion of the savings every month, jumped into LC, on the IRA side, by rolling over a 401(k) that has done nothing in the past few years. Now I am actually seeing some good returns (22%) after 3 months. I know that will change over time, but its much better than where the money was sitting before. Looking to get into VTSMX very soon too. Bought a “new to me” vehicle on Craigslist last month using your advice. Couldn’t be more pleased with the direction you have given. I finally feel like I am getting my family on track. We have savings goals that we are actually meeting/have met now. Look forward to reading your future posts. Thank you.

  • Brian August 27, 2013, 1:10 pm

    I’m kind of surprised that no mention has been made of the 1% (or more) that LC takes as a commission when interest is paid and when notes are sold. Since they take at least .01 from every transaction, this is especially pronounced in smaller (say, $25) notes that throw off less than a dollar in interest every month. Even .10 worth of interest pays LC .01…so a 10% fee! As my dad would say, that ain’t nothing…

    • Mr. Money Mustache August 27, 2013, 3:10 pm

      The reason I don’t mention fees is that I am reporting only net results here. I don’t care what happens to the money before it shows up in my account, as long as the amount that does show up is a reasonable return – which it is in this case.

      • Warren August 28, 2013, 5:44 am

        MMM, I totally agree with your point about fees; for me it is all about net as well. Some point to fees as excessive in the mutual fund industry, especially in Canada, where I live. However, that criticism is because after fees, many mutual funds do not out-perform the market – begging the question what am I paying the fees for? It appears that one pays mutual fund fees to enrich mutual fund managers.

        In the peer-to-peer example, the return you note is solidly outperforming the market. I liken this more to a business partnership, where both parties are benefitting. I give you money; you make more money with it; we both are enriched.

        You could take the example a little further (and I hope I am not stretching too much here) to your post about hiring people and paying them above the minimum wage. More of a partnership-type model as well where both are enriched.

        Warren (MMM Ottawa Summer Meetup-palooza co-host)

        • Leslie August 28, 2013, 9:54 am

          The problem is not the stated brokerage fees that appear on your statement but the invisible ones we never see. There are fees for everything, sometimes, even for deposits and withdrawals. Transparency would be nice.

  • Green Money Stream August 27, 2013, 1:15 pm

    I had considered investing in LC back when I read your first article on it. I procrastinated as I was researching it a bit. In looking at the stats, I could see that the space was becoming crowded as you are experiencing. Still good returns, as you say. I’m curious to see where you end up in 2 to 4 more years. Thanks for the update!

    • Clint August 27, 2013, 6:51 pm

      It’s been awhile since I read the earlier posts, so sorry for what may be stupid questions. But anyone have some quick thoughts on these: what’s the aversion to those b loans. There are a lot of them and at 10-13%, isn’t that a pretty darn good return? Less risk of default?

      • MsSindy August 28, 2013, 8:27 am

        I’d be interested if anyone had a perspective on this as well. I was thinking of looking to LC/Prosper to borrow funds for additional inventory for my business, but I would be a Grade ‘A’ borrower – It sounds like I might not have that much success in getting funded?

    • MoneyAhoy August 28, 2013, 5:12 am

      Yeah, I should have jumped on the train when MMM first did the article, but I also procrastinated. Oh well…

  • Pete August 27, 2013, 6:23 pm

    Hi Mr Mustache,

    I was just wondering if you or your friends had heard of a similar scheme happening in Australia? I have done a bit of searching but was a bit iffy about the companies without a recommendation.

    I did contact the Lending Club as an international and I needed a minimum of $100,000 to open an account.


  • Ricky August 27, 2013, 7:09 pm

    Last time someone tried to fix the supply (of borrowers) issue we ended up with subprime mortgage crisis. Do you think something similar can happen with peer-to-peer lending?

    • Catherine August 28, 2013, 8:59 am

      This is what I’m wondering about as well. Are they going to increase borrowing by simply finding more “good” borrowers, or are they going to wind up letting in more potential defaulters? I know when I first invested in LC, they were VERY aggressive about trying to get me to increase my investment amount. I was getting weekly phone calls for quite a while. Finally I managed to talk to someone who seemed to “get” my rationale and they started to leave me alone (probably put me into their “hopeless cases” file!).

      I am personally a bit leery of LC after having seen my expected rate of return slide from the mid-teens to about 8% after a string of defaults in my 2nd year–if you are putting in smaller amounts of money (a few thousand rather than $10k+) a small number of defaults can really kill you. Also, the defaulters were not necessarily the “riskiest” (by letter) loans.

  • Ben August 27, 2013, 8:29 pm

    The crowded space sounds a lot like experiences I hear from the show Shark Tank. Wherever there is easy money to be made soon enough you can be sure it will be crowded. Need those economic moats.

  • Crystal August 27, 2013, 9:37 pm

    Apparently Texas doesn’t allow us to participate yet. I think someone mentioned a work around that once, but it wasn’t as tasty as investing directly. I’ll keep my eye on it though! :-) Congrats on your return!

    • twbird18 August 28, 2013, 1:59 pm

      You can create an account on lending club, but then instead of getting your loans directly from them you go to the trading platform called folio & purchase your loans from people who are selling theirs – this is how people cash out quickly. The returns are still pretty good if you are patient you can get loans by paying around 1% to the seller. The main problem with purchasing this way is that the search engine isn’t very efficient, but you won’t have the problem that others are running into. I have never had difficulty finding loans that I wanted. I live in Massachusetts another state that doesn’t allow participation.

  • jestjack August 28, 2013, 6:36 am

    I’m reminded of the old saying…”if it seems to be too good to be true it usually is…”. I have been playing with the idea of investing at Prosper and have begun doing my “due diligence” and it concerns me a bit. What goverment agency oversees these folks? In this era of the Bernie Madoff’s how hard would it be to pull a scam? What concerns me most is the behavior of borrowers….especially those with “debt consolidation”. My experience has been those with CC debt get the loan and then proceed to run the credit cards back up…never good. Let’s not forget Washington Mutual was a highly regarded lender and within months lending practices did them in …..causing HUGE losses to investors.

    • chad August 28, 2013, 11:10 am

      I invested in Prosper a long long LONG time ago back in 06 and 07. Here are my stats. It goes without saying that I was disappointed and the only silver lining is that I went in with very little money to test the waters. I will never do P2P lending again.


      • jestjack August 28, 2013, 1:23 pm

        YIKES!!! People seem to forget these are ….unsecured…loans. Many of these folks that default already have credit that’s shot to heck…so a “ding” from Prosper on a default …not a big deal…

  • Matt Becker August 28, 2013, 6:57 am

    I honestly don’t think much of peer to peer lending as a long-term investing opportunity. I don’t think it’s worthless, but I think it simply falls somewhere between junk bonds and stocks on the risk-return spectrum. There may be a small place for that in your portfolio, but it’s not the mecca that people are making it out to be. There are 0 examples in history of investments that provide stock market-like returns bond-like risk. That may happen for a short period of time, but over longer periods it will even out. There’s no free lunch happening here, just another example of a hot new investment product performing really well for a few years before it comes back to earth and people stop talking about it as the latest and greatest.

    • David September 5, 2013, 12:34 pm

      But credit card companies have known for years that the worst deb is actually the best debt in terms of returns. This is a chance for folks like us to earn what a credit card company gets.

      • Matt Becker September 6, 2013, 11:50 am

        Credit card companies make money in many ways beyond collecting interest from their cardholders. That’s really not a valid comparison.

  • Paul August 28, 2013, 8:21 am

    Seeing your article today was a sad little kick in the nuts because just last night I applied with lending tree to try and consolidate a few different debts down into one. It’s been a rough year and I was hoping to get a little help to get back on my feet and I couldn’t get anything. The weird thing is that I’m steadily employed with a great full-time job, I make on-time if low payments on my cards, have no outstanding debt and still I can’t get help!

    You’d think I’d be a great match for them but nope, denied. I’m not really complaining though as it’s their money to lend out and I’ll just work a lot of over time and do extra side jobs to get out of the hole. It’s just frustrating to be a supposedly good match for help and be rejected.

  • Jayem August 28, 2013, 10:08 am

    Is the 17.31% net annualized return on the funded balance or the total balance with LC? I’d assume it’s the former, but given the comments people have made about difficulty finding enough loans to fund this doesn’t tell the whole story. If you’re only able to put half your money to work, your overall return is halved as well. Probably not a huge difference for you MMM since you’re +90% funded, but a bigger issue for new investors where advertised returns (net annualized) won’t reflect reality (cash on cash returns).

  • preaserjones August 28, 2013, 1:06 pm

    MMM, this is a very interesting read which addresses the lack of available loans.


    I’m particularly interested in #6 “. Automate Investing with Third-Party Tools.” It seems the biggest downfall recently is that large institutions/companies are eating up all the good loans with automated API scripts. I’ve too found this to be difficult to work around in Prosper (which I’m stuck with since LC isn’t available in my state). You can occasionally snag good loans if you log in right when they post, but you can’t count on Prosper’s built in automated “quick invest” to work well. I’d be interested to see if setting up your own API script does the trick. Does anyone have any experience with API scripts for Prosper? Seems like there are a lot of resources and reviews for lending club APIs but not many for Prosper. I think it would be doable to query Prosper’s API since loans are posted at regular scheduled intervals (e.g. you would not be flooding them continuously with thousands of queries per second).

    • Mike Hardy August 28, 2013, 4:22 pm

      Interesting there aren’t as many 3rd party tools for Prosper as for LendingClub. From what I gather Prosper actually has a really well-formed and public API, whereas LendingClub has what is rumored to be a mal-formed API which is apparently not made public in general. This is gathered from lots of posts in various fora so take it with an appropriate sized grain of salt.

      My guess is the LendingClub focus despite this is because the pool of notes is so much larger at LendingClub, so 3rd parties are just targeting the larger market – that’s my choice at least – but it certainly leaves the door open for Prosper to catch up if they execute really well on letting 3rd parties work with their platform.

      Right now LendingClub is essentially freezing out the small investor that uses their website, and making it difficult to develop 3rd party tools though folks are managing to anyway.

      Will be interesting to see how this pans out a couple years from now.

  • Mike Hardy August 28, 2013, 4:18 pm

    I looked at P2P lending after seeing it here, and opened an account like a lot of others because the returns were so compelling.

    Late to the party though! No auto-portfolio on the Lending Club site created a portfolio that would generate the 15% or higher returns I had seen previously.

    I don’t want to spend the time to be the equivalent of a professional video gamer with an itchy mouse finger to get the high-return / low-delinquency notes when they hit the platforms for purchase.

    So I went a different route.

    First I investigated how to create good filters at lendstats.com (really useful!), then I looked to see if anyone had an automated solution to apply my filter and invest in loans when they hit the lending platforms, without me doing anything. I mean, this is a new era, where computers are supposed to do this sort of work for us, right? I know Prosper has something similar already but LendingClub has such a larger volume of loans it was the platform I was most interested in.

    I’m a programmer and comfortable automating things myself. I found some libraries that let me auto-invest on LendingClub, and they work fine, but it sure would be nice if I didn’t have to do the work myself (good programmers are strategically lazy that way)

    I then found BlueVestment, and that’s been pretty helpful – I have to give that entrepreneur a lot of credit. The UI needs some help and it doesn’t do everything I want but the idea is right on, and I’ve been able to make some initial investments that way.

    BlueVestment was free, but they are about to start charging nearly 1%, and I’m too much of a Boglehead to allow for that. So I’m re-working my prior programming solution as LendMachine.com to allow for auto-investment and also a few more automated things I think are needed to allow for proper “gardening” of a p2p loan portfolio. Whenever it’s good enough to share with people in a way that they’ll still want to meet me in person afterwards and be friendly ;-), I’ll open it up to others .

    This general style will be where the p2p loan space will I go I think. The platforms themselves (Lending Club and Prosper) will be the marketplace and handle supply clearing and collections, but I think the work needed to invest wisely and manage investments will be the domain of 3rd party sites, in the same way you trade on a stock market, but Schwab and E*Trade and Vanguard etc are how you get there. Just like an ETF, I can justify at least a little fee for the extra value in an automated solution to reduce the hassle-factor and avoid conflicts of interest from the platforms themselves

  • Laura September 2, 2013, 11:39 am

    MMM–Long time reader, first time poster. I’ve been using Lending Club for about a year, too, but around January I signed up for an automated service that was in its infancy at the time. That service has since gone live and is now charging people. There are maybe a couple others out there that I know of. Have you considered an auto-invest feature? If time is money, linking yourself to LC 4 times a day just to get high yield notes is sort of an obnoxious use of time.


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