Today, for the first time Lending Club’s 148,000+ individual retail investors will be able to manage their account and direct investments all on their iOS device. New investors will also be able to create a new account right through the app. A corresponding Android is said to be in the works to be released soon. Founded in 2007, Lending Club is the world’s largest P2P lending platform with over $20 billion in loan issuance. It offers both consumer and small- and medium-sized enterprise (SME) loans over fixed periods of 36 or 60 months.
At Lending Club, a person can borrow up to $40,000 with a fixed interest rate, for just about any purpose, with fixed monthly principal and interest payments. Business borrowers can have credit lines as high as $500,000. Many consumer borrowers are looking to consolidate and pay off credit card loans at a lower rate.
The loans have maturities of up to 60 months, and loan approval and interest rates are based on “stringent credit criteria designed to focus on the most creditworthy borrowers,” according to Lending Club.
So how does Lending Club Work for Investors?
- Potential borrowers submit loan applications through Lending Club and Lending Club begins the screening process.
- If approved, each loan is assigned a Grade between A and G based on a borrower’s credit quality and underlying risk.
- As an investor, you can then select and invest in Notes which correspond to fractions of these loans.
- By investing in at least 100 different Notes of relatively equal size, an investor is able to diversify their portfolio.
- As borrowers repay their loans, funds are deposited into an account and can be withdrawn or reinvested.
As mentioned, Lending Club lets you invest in “notes,” which are portions of loans, in increments as low as $25. So you might invest $2,500 by purchasing 100 $25 notes, effectively lending to 100 people. That’s quite a bit of diversification, and it limits your default risk to $25 per investor.
After you make your investment, you can select your risk level and the number of notes. (For most investors, that should be at least 100, to lower risk through diversification.) Over time, the principal and interest payments will roll in, minus losses and fees.
Your investment will shrink as loans with relatively short maturities are paid down. The cash portion of your account will grow. You can set your account to automatically maintain your investment level, manage it manually, or just let the cash accumulate.
Lending Club Notes have historical annual returns between 5% and 7% after fees and losses are accounted for. Also, Lending Club reports that 99% of investors who invest in 100+ Notes of relatively equal size have seen positive returns over their lifetime. Full investing privileges in Lending Club notes are only available to US residents in all states except Alaska, New Mexico, North Carolina, Ohio, and Pennsylvania as of September 2016.
Have you invested in any P2P loans through Lending Club or another platform? Let us know your experiences in the comments.