Passive Income with Peer to Peer Lending at Lending Club

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Lending Club Investing - Dumb Passive IncomeMuch of my focus on this blog so far has been on my attempts at internet marketing through building various types of websites to try to create a passive income. However, there is one other thing that I am doing to create passive income online that does not require the work and knowledge that it takes to build a website. I recently invested some money at a peer to peer (P2P) lending site, Lending Club. Whether or not investment income from interest of this nature is considered passive or not is debatable. For me, it is passive enough. I spend about 30 to 60 minutes per month choosing notes to reinvest my principal and interest payments into. So it isn’t completely passive. But, I am not actively trading time for money like I do at my day job. I choose the notes to put my money into about once a month, then they sit there and earn interest for the entire month while I do nothing. Allow me to explain how and why I got started in P2P lending at Lending Club.

I Wanted to Apply for a Personal Loan Online

Around August and September of 2012, I was becoming increasingly frustrated with my inability to get my small niche sites to rank and start earning a good passive income. I was seriously considering purchasing a few niche sites from proven successful Adsense niche site builders like, The Adsense Flippers and Mike from Maine (Mike no longer builds and sells Adsense niche sites). At the time, these types of sites typically sold for 20x their monthly income. For example, if a site earned $50/month, it would sell for $1,000. From a Return On Investment (ROI) perspective, this is an incredible value. $50/month equals $600/year. A $1,000 investment that returns $600 per year is a 60% ROI. This, of course, does not include other factors such as risk.

I had myself convinced and I was willing to take on the risk. I only had one problem – I didn’t have very much money in my “online” account. (I only allow myself to spend money on my online ventures that I’ve already earned online). I began to consider taking out a loan, which I totally justified based on the rate of return I would be receiving from the investment. Wanting to keep it all online, I wondered, “What is the easiest way of borrowing money?” I began researching different places I could apply for a personal loan online. I had heard of both of the major peer to peer lending sites, but never gave them much thought. I went through the initial rate check part of the application process at both Lending Club and Prosper.

I was approved at both sites. Lending Club came back with a much better interest rate for the loan I was considering ($2,500 on a 3 year term). Lending Club offered me an APR of 7.99% while Prosper came back with 12.53% for the same loan.

Check Your Rate - Lending Club - Dumb Passive Income
Lending Club Rate – Click to Enlarge
Choose your loan - Prosper - Dumb Passive Income
Prosper rate – Click to Enlarge









I was all set to go forward in late September and then Google came out with their EMD update. It completely shook up the niche site scene for a while. The sites that the Adsense Flippers were building and selling lost rankings and diminished their income by 60 to 70 percent! Mike from Maine’s sites also got hit pretty hard. Both of these sites stopped selling their sites in lieu of the Google algorithm changes. I put aside my plans to purchase niche websites. Luckily, I had not gone forward with my loan application. But I was intrigued by the whole peer to peer lending model.

Investing in P2P Lending Notes to Replace Savings Accounts

Instead of borrowing money from a P2P lending site, I decided to invest instead. This sounds stupid, I know. If I didn’t have any money and I was considering borrowing money, how do I have money to invest? Like I stated, I try to keep my online venture finances separate from my personal finances, as far as for what I am doing to try to earn money online. I did have some money sitting in a few bank savings accounts though that was earning a whopping .01% interest. This money was ear-marked for my sons, who are currently 5 and 2 years old. The total from the two accounts was $1,001.84.

I opened an investing account at Lending Club and transferred that exact amount over. This was in mid to late October, 2012. Transferring funds online from my bank account to my Lending Club account was really easy. I chose the option of connecting one of my bank checking accounts to my Lending Club account. This process took a couple of days, as they needed to verify my account. After that, I set up the transfer, which took another 4 days.

Lending Club - Transfer Funds - Dumb Passive Income

I was now ready to start playing around within the Lending Club site and figuring out how to invest the money. In future posts about Lending Club, I will go into very specific detail for exactly how I invest in Lending Club notes and share my strategy. For now, I will just show you some initial investing numbers and screenshots and share my results for the past two and a half months. I can assure you that the decision was wise to move my money out of low interest bank savings accounts into peer to peer investing at Lending Club.

My Lending Club Initial Investment

With $1,001.84 in my Lending Club account, I was ready to fund some notes. The first 10 notes I invested in ranged from $46 to $124 and totaled $1,001.34. Of the notes that I originally funded, the lowest paying interest rate was 15.57% and the highest was 23.33%. Here is a screenshot of my original order for those 10 notes.

Initial Notes Purchased - Lending Club - Dumb Passive Income

Each of these notes are just small portions of much larger loans that are funded to Lending Club borrowers. They all have different interest rates and due dates. Throughout the month, as the borrowers make payments on their loans, my portion of that payment (principal and interest) is added back into my Lending Club account. This money shows up as “Available Cash,” and can either be withdrawn or reinvested. Since I do not plan to use the money for several years, I am choosing to reinvest all of the payment money. I have done this twice now since I opened this account.

In late November, 2012, I had about $40 in “available cash.” I purchased two more notes for around $20 each. Again, in late December I had about $35 in “available cash,” which I used to purchase three more smaller notes. I now own 15 Lending club notes as a result of my initial investment of just over $1,000. This is what they look like.

My Notes at Lending Club - Dumb Passive Income

My Lending Club Performance

I’ve had loans funded now at Lending Club for two and a half months. Of my 15 notes, 14 are current and 1 is currently over a month late. Luckily, that one is one of my smaller loans. My net annualized return for this two and a half month period currently sits at 21.97%! My account summary screenshot below (for today – January 11, 2013) pretty much says it all.

My Account Summary Today at Lending Club - Dumb Passive Income


After only two and a half months, my account is now worth almost $1,028! Compare this to the two or three pennies in interest I would have received if I left it in my bank savings accounts! If you would like to invest in peer to peer lending and have a shot at returns like this, go here for more information and then open an account at Lending Club today!

Lending Club Investor - Dumb Passive Income

In future posts about Lending Club, I will share in greater detail exactly how I purchase and fund notes and also share my strategy to maintain high returns. I will also keep you up to date on how my notes are performing by sharing my exact numbers with screenshots and explanations.

Until then, remember that there are several dumb ways to create passive income online, but only one site that is blogging about it! Dumb Passive Income… dot com.

Any Lending Club or Prosper links or banners in this post lead to affiliate links. If you click on any of these links and choose to open an account, I will receive a commission. I greatly appreciate it if you do so and hope that the information I am providing you is helpful in making your choice, one way or the other.

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34 thoughts on “Passive Income with Peer to Peer Lending at Lending Club”

  1. That return is nothing to sneeze at! I’ve not looked at P2P lending myself before, though I might look at it here in the not too distant future with some spare cash and see what happens.

    • Exactly what I am doing John. Seeing what happens with some spare cash. After several months I will likely start to invest some serious money, including using the IRA and/or ROTH IRA accounts that are available at Lending Club.

  2. I used Prosper in 2007 and got burned pretty bad by the individuals that I made loans to. From my understand the entire P2P lending industry has been regulated and revamped. I plan to take a good look into this summer and assess if it is a good fit for me.

    • I’ve read about a lot of people who got burned during that same time period. I don’t have any personal experience with investing at Prosper, but I know that Lending Club is very careful about who they allow on their platform. They boast that they turn down 90% of their applicants, allowing only the most qualified borrowers to participate. All of their historical numbers, data and statistics are transparent and readily available. With several years of positive performance, I was VERY comfortable investing money in P2P loans.

  3. Matthew,

    Have you considered just changing your address on Lending Club to say that you are in a state other than Michigan? I felt that it was ridiculous that I could buy notes on the secondary market but not through the primary market, so I just changed my address. I contacted Lending Club and they told me that they only verify the location of the people seeking the loans, not the investors.

    I just make sure I pay the IRS what I owe on my Lending Club income and everything is fine.

    • That is very interesting LC. No, I had not considered this. I figured anything where I will paying taxes and dealing with the IRS better be totally legit.

      So, you’ve done this for some time with no problems? Did you use a real address, or just make one up? Does Lending Club not send out critical financial data via US Mail at year end – or do you get all of that electronically?

      Thanks for bringing this up and giving me something to consider. I am one of these weirdos though who actually likes buying/selling notes on the Foliofn note trading platform. I honestly think I can gain better returns if a certain strategy works out.

      • I have done this for over a year now with no problem. I used a friend’s address in another state and he has never received any mail from Lending Club. Even if LC started sending mail I am not concerned since all the necessary tax documents are available online. This is the first time I need to pay taxes on my LC investments though, so I can’t say for certain that they will not be sending out tax forms at the end of January.

        Like you, I was hesitant to submit a false address. I called a representative at Lending Club and said something along the lines of “Hello. I want to invest with Lending Club but am about to move from California to Alabama. I’m worried about moving from a state that allows me to invest in the primary market to a state that only allows me access to Foliofn. What should I do?”

        The Lending Club representative told me something like “Well you can start out with your California address and just consider that your residence. We only verify the address of people seeking loans, not the addresses of investors.”

        The woman could not come out and directly say it but I came away from our conversation with the impression that Lending Club is fine with investors changing their address in order to gain access to the primary market.

        So if you are happy with Foliofn then maybe you do not care about the primary market. Just keep in mind that changing your address appears to be a perfectly legal option if you do want to purchase notes directly from Lending Club.

        • Thanks a lot for this information LC! I absolutely intend to copy & paste much of what you just wrote in a future post on this site. I may even try this just so I can experiment a little bit with the primary market vs. the note trading platform.

          • If I were you I would be hesitant to write a post about what I’ve written. Lending Club may not go through and verify the address information provided by investors, but they may be obligated to take action if you make a public blog post about it.

        • I’m in a state where I can’t participate in the primary or secondary market and
          am considering the same thing by using a relative’s address. My concern isn’t
          the IRS since I will report my gains (hopefully) or losses on my federal
          return. How do you handle state taxes though? Can the gains/losses be claimed
          in a state where p2p lending is prohibited? Would I now have to file a return
          in a separate state?

        • I’m in a state where I can’t participate in the primary or secondary market and
          am considering the same thing by using a relative’s address. My concern isn’t
          the IRS since I will report my gains (hopefully) or losses on my federal
          return. How do you handle state taxes though? Can the gains/losses be claimed
          in a state where p2p lending is prohibited? Would I now have to file a return
          in a separate state?

          • I won’t pretend to be a tax expert – but I believe taxes on investment gains are taxed at the capital gains rate on your federal return only. I don’t think this would have anything to do with state taxes. Of course, I could be wrong and this could vary on a state to state basis. -Matt

  4. Love this post, great detail and the screen shots add a nice touch.

    I have been reading up a decent amount lately on peer-to-peer lending, and at some point this year when I have a little more available cash to play with, I’m going to set up an account with Lending Club.

    The defaults do make me slightly nervous, but I guess that’s just part of the game.

    • That’s awesome PFB! You won’t be disappointed. I can tell you that I am having a lot of fun investing at Lending Club. Contrary to mutual fund investing, it is really cool to have complete control over the investments and watch them consistently grow without the major down-swings like we get in the stock market.

      The defaults didn’t even concern me when I signed up. I know they are part of the game, and Lending Club clearly includes them in all of their historical data. The returns are spectacular (in my mind) despite the defaults.

    • Cool Mikey. I definitely plan on more Lending Club posts with more screenshots. I think P2P is definitely the wave of the future. It’s an awesome platform to cut out the fat cat bankers profits from the lending equation and instead give the profits to ordinary people like us.

  5. Interesting screenshots you have. Particularly the one showing your

    I have accounts with lending club and prosper and they do not allow fractional loan investments like the ones you have shown. You can only invest in $25 increments…so $25, $50, $75 etc.

    Seems they also no longer offer the $100 bonus when you sign up. I fear as these companies get more popular they will no longer care about rewarding people that recommend their services.

    I think this “not caring” may also carry over to the fees they charge to borrowers and investors. They currently charge a percentage of the loan to the borrower and take a percentage of the interest received from the lender. Kinda like double-dipping if you ask me.

    Also lending club is getting ready to have an IPO soon. A lot of big money is also moving to p2p lending so I expect that this will affect the small investors like you and I in some way.

    Some investors are already starting to complain about it.

    • Dale – the way I am able to invest in “fractional” increments is through the secondary note buying platform. As a resident of Michigan, that is the only way I can invest right now.

      I see the upcoming Lending Club IPO as a good thing. From what I’ve read, after this takes place their investing platform will be available to all 50 states.

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