For Those Who Wonder – Is Lending Club Legit?

Is Lending Club Legit - Dumb Passive IncomeIs Lending Club legit? Yes. I happen to know that 170 people per month in the United States wonder about this very topic. I have to ask myself – who are these people that are wondering whether or not Lending Club is legit. They have to be one of two types of people. Either people who are looking to borrow money or people who are looking to invest money. It is perfectly reasonable and rationale that they are skeptical. Borrowing or investing money 100% online in a peer to peer format seems a little bit sketchy. Is peer to peer lending safe? Is it safe to borrow money online from a P2P site like Lending Club? How much risk is involved if I am considering investing on a site like Lending Club? All of these are fair questions and I will do my best to point you in the direction to answer them and prove that Lending Club is in fact 100% legit.

The Lending Club Story

I started investing at Lending Club in late October, 2012. Around Christmas time of that year I stumbled upon a book called, The Lending Club Story. I was thrilled that somebody wrote a book about the history of the company that I had recently started investing through. I immediately bought the Kindle version, which was selling for only $4.99 at the time. I read the entire book in one day! I absolutely loved the book and highly recommend it to anybody who is either already a borrower or investor at Lending Club – or for anybody who is on the fence and wondering whether or not Lending Club is legit.

Here is the book description from Amazon.com: Every now and then a company comes along that completely transforms an industry. Today, what Lending Club is doing to the financial services industry is truly revolutionary. The way we invest and borrow money is being changed forever. With over $1 billion in loans issued Lending Club is quickly moving towards the mainstream of consumer finance. Peer to peer lending can no longer be ignored as a passing fad, it is clearly here to stay. The Lending Club Story is the first book ever published about Lending Club, the world’s largest p2p lender. It is part storytelling, part investment guide and part reference book. In this book Peter Renton, the publisher of the most widely read blog on peer to peer lending, will explain:

  • What is peer to peer lending and why it is becoming so popular
  • How Lending Club went from just an idea to $1 billion in loans in less than six years
  • How a little startup called Lending Club thrived during and after the financial crisis while some of the largest companies on Wall Street were collapsing
  • How investors are benefiting from this new kind of investment
  • How the borrowing process works at Lending Club
  • What the future holds for this fast growing company

Many intelligent investors from successful hedge funds as well as small mom and pop investors are moving money away from the stock and bond markets and into peer to peer lending with Lending Club. After you have read this book you will understand why.

Lend Academy

As I read through the book, I discovered that the author also runs a blog that is completely dedicated to the peer to peer lending industry. Peter Renton has put together a very useful and valuable resource for anybody interested in any aspect of P2P lending. His site is called Lend Acadamy and he provides all sorts of great information, including insider stuff from sources that the average blogger might not have access to. Peter scours the internet for news, tips, resources, reports and anything else that has to do with peer to peer lending. He reports on his findings both through social media, as well as on his blog.

Are you still wondering about the legitimacy of Lending Club after seeing Peter’s book and website? If so, I would simply ask you this question – why would somebody like Peter devote so much time and energy to the subject if it wasn’t legit? And no, Peter does not work for or have any ownership in the company. He is just a regular guy who has borrowed through and who currently invests in peer to peer lending notes at Lending Club.

Is Lending Club Legit?

Still not convinced? Why not take a look at their website yourself. Thinking about borrowing money at Lending Club? Click here to get more information and then head over to Lending Club and apply.

Borrow at Lending Club

Want to be an investor at Lending Club like me and earn some of those great returns without the volatility of the stock market? Click here for more information on how to open an investing account at Lending Club.

Lending Club Investor - Dumb Passive Income

My Lending Club Performance to Date

This will be my last attempt at proving the legitimacy of Lending Club in this post. I have previously written a detailed post about exactly how I got signed up as an investor at Lending Club and all of the steps that it took. In that post, I claim that I am earning passive income from this venture. I call it passive because I consider it “passive enough.” I spend usually not more than 30 minutes per month managing my account and re-investing my payments and interest into new notes.

Because I live in Michigan, I am only allowed to invest in notes through the secondary note trading platform which is run by Foliofn. I wrote another detailed post about that, which explains my strategy for buying Lending Club notes and the exact process that it takes. I am using an aggressive strategy and I have been able to maintain a Net Annualized Return rate of just over 22%. I’ve had money invested at Lending Club now for just over 4 months. Here is a screenshot of my account summary for today (March 1, 2013).

Account Summary Feb2013 - Lending Club

 

Since this is the day I logged in to do my end of February account management, I decided to re-invest much of the $32.17 that I had in available cash. This is money that was paid into my account via principal and interest payments from borrowers for the notes that I own. I clicked on the Trade Notes button at the bottom which took me right over to the Foliofn website. I set my parameters and found this note in less than 10 minutes.

Browse Notes - Lending Club - Feb2013

 

I highlighted some of the things that stood out to me and got me excited about this note:

  • A – Yield to Maturity 36.8% – this is the rate of return I can expect if the borrower doesn’t default and I hold the note until it is completely paid off
  • B – 52 months of payments remaining – I like to look at 60 month loans that have at least a few months of payment history – 60 months loans get higher interest payments on the front end
  • C – $18.00 Asking price
  • D – $23.48 Value based on Outstanding Principal plus Accrued Interest
  • E – Loan shows as being current with an arrow pointing sideways which indicates no change in credit score. Clicking on the link that says Current brings me to the Loan Performance page for this particular loan

Loan Performance for Lending Club Note Trade Feb2013

 

This borrower had made on-time payments every single month until just recently. Their February payment is still showing as processing. I like the fact that the borrower contacted Lending Club themselves which tells me that they are being proactive in trying to make their payment. The current owner of this note apparently freaked out because they went a little bit late last month so decided to sell the note at a deep discount on the note trading platform. Since my approach is aggressive, I am willing to take on that risk. I don’t think this borrower is going to default and I think I am going to end up with a sweet return on this note!

In addition to this note that I purchased for $18, I found another note that I purchased for $13. That’s a total of $31 that I re-invested from the $32.17 that I had available. I spent less than 30 minutes in my Lending Club account and the note-trading platform, which is typical for what I do each month. I will do the same sometime at the end of next month.

Conclusion

So, is Lending Club legit? There’s a book about it. There’s an entire website dedicated to the industry. Their comprehensive website is legit, user-friendly and ready to go. They have advertisement banners to promote their products and services. I have been researching the company and the platform and even opened an account myself. I read blogs by others who also invest at Lending Club. So, yes. My conclusion for you is that Lending Club is totally and completely 100% legit.

And don’t forget, there are several dumb ways to create passive income online, but only one site that is blogging about it! Dumb Passive Income… dot com.

Current Lending Club Investment Rate of Return: 18.31%
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References

Image: cropped version of “payday4” from Flickr by americans4financialreform

  • http://www.lendacademy.com/ Peter Renton

    Thanks Matthew, I appreciate your kind words about my book and website.

    I think it is time we put the “Is Lending Club legit?” argument to bed. There are now tens of thousands of investors how have invested in over 100,000 loans. All the data is publicly available as is the company’s financials. They are clearly a legitimate and successful operation.

    • http://dumbpassiveincome.com/ Matthew Allen

      Thanks for the comment Peter and for throwing some numbers in there to reinforce my argument. You and I know that Lending Club is legit. A lot of people still wonder though. I hope many of them pick up your book and read it – because you leave no doubt, for sure!

  • http://livetheneweconomy.com/ Mike

    Nice! I’m close to closing in on my $10,000 in investments in LC before I hit Prosper for the same amount. I’m hoping to draw some conclusions about one over the other! I’ve limited myself to 3-year loans and I’m about 18 percent ROI right now.

    • http://dumbpassiveincome.com/ Matthew Allen

      Very cool Mike. I’m going to seriously consider opening a Lending Club Roth IRA in the not too distant future. I probably won’t be quite so aggressive with Roth IRA funds, but still think I can beat my mutual fund returns and on a more consistent basis! 15% is easily attainable (I think) with some lower risk loans.

      Just curious – why again do you focus on 3-year loans only? Higher interest payments are received for a longer period of time on the front end of 5-year loans. One strategy could be to invest in 5 year loans – then sell them on the note-trading platform after a couple of years when interest payments coming in are lower.

      • http://livetheneweconomy.com/ Mike

        I did a video on this recently, but two reasons: 1) investor psychology: I am focused on debt consolidation loans exclusively and the “danger zone” for defaults is in the middle of the loan. Shorter loan, less danger zone; 2) my time horizon: now that my transition has been pushed off (I think– unless sequestration intervenes), I will still need my pile of money in about four years time. Three year loans allow me to snowball for up to one year then get out of them over the next three. I don’t want to have to dispose of $10-$11K worth of notes on the trading platform (and I plan on doing the same amount at Prosper). A talked a little bit about this in a video embedded in my January report: http://livetheneweconomy.com/blog/2013/2/2/the-ltne-report-january-2013.html

        • http://dumbpassiveincome.com/ Matthew Allen

          I see. Your strategy makes sense if you plan to use the money in a few years and you really don’t want to hassle with “disposing of” notes on the trading platform. You really should give the trading platform a shot though. I sold one note on there just to see how it would go – and made a small profit on it!

          Another strategy for you could be to keep re-investing the money and then sell them for a very slight loss right before you need the money. The interest you will gain over 3 years will far outweigh the slight loss you will take at the sale. Selling at a small discount will ensure that they actually will sell quickly. It just seems crazy to me to let all of that principal and interest money sit idle for 3 years or so!

          • http://livetheneweconomy.com/ Mike

            Yours is a valid strategy for sure. I’m just trying to make this as passive as possible. Plus, as quickly as our life changes these days, I could have a completely new strategy six months from now. I’m just dead set to pay cash for a house if I end up transitioning in four years, plus be closer to having our rental home paid off (read: rental income), plus whatever passive income I’m generating from other places (including my sites), and my retirement income from the military. All of that equals a real possibility to be able to early retire, full-time blog, take on part-time consultancies, start my own business, etc. I want that pot o’ cash to be able to make that easier.

  • Quinn

    Hey Matt, Great post – it is really interesting to see how it works. Seems to me like most of the work you are doing is just reinvesting, is that right or do you spend a fair amount of the 30mins managing the ones you have too? Quinn

    • http://dumbpassiveincome.com/ Matthew Allen

      Yeah Quinn, that’s pretty much all I do – re-invest the principal and interest for that month. I don’t do anything with the notes I currently own. The only thing to do would be to consider selling them based on certain criteria. I’m simply holding on to them for now.

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