Lending Club Scam? NO! Lending Club Review after 1.5 Years
After the TSP, I invest my money in Betterment and Vanguard. I track all of my investments with Personal Capital. I also wrote a short, 2 hour book summarizing this site. You can buy it here.

Check out my latest update after 2 years of investing in Lending Club.

Lendingclub.com may sound like a too good to be true scam when you first read about it. 9% average return? 100% positive returns for investors with 800+ notes? Isn’t this exactly what Berni Madoff was promising his investors in his Ponzi scheme? Lending Club is certainly not a scam, and the risks are as real as the rewards. After over 18 months of investing through Lending Club, I have seen returns 8 times better than any bank account or CD, with a better cash flow than the stock market.  Let’s start with how I got involved in the LC.

My Story

Back in January 2011, I was frustrated with the returns I was getting in the stock market. I was looking to diversify my investments and I also wanted to increase my monthly cash flow. I looked at various options, such as stocks, bonds, CDs and other investment vehicles. None of them really provided the returns I wanted while also spinning off monthly dividends. Then I found Lending Club.

The peer-to-peer lending concept was familiar to me from Kiva. People who need loans but can’t get them from banks or can’t get a reasonable interest rate apply for loans that are funded by small time investors. Most investors have only $25 in each loan, meaning that they have very little to lose on each defaulted loan. I knew the default rate for Kiva was as low as 1.04%. Could Lending Club provide similar low risk with high return potential?

Getting Started

At first, I was apprehensive. The returns seemed too good to be true. Who was borrowing money at such a high interest rate? What was the default rate like? How much data did the company have to backup that people would actually repay the loans? All of the questions and more were clearly explained on the website. The transparency of the lending process and the amount of data available to the lender is fantastic. You can find lots of stats here. There’s even more data once you sign up for the service.

I decided to put $1000 into LC to test it out. Over the next few months, as I started to see excellent results, I put a few more dollars in there. The results continued to be great. So how does Lending Club work? And, how can you get it to work for you?

Lending Club – How it Works

lending-club-scam-resultsLending Club is really a simple concept. Creditworthy borrowers, usually with FICO scores over 700, go to the site, request a loan for anything they need (car, wedding, debt consolidation, credit card payoff, whatever). Based on the borrowers creditworthiness, they are assigned a letter from A-G and a number in each letter grade as well. A grade loans therefore have the lowest default rate and the lowest interest rate.

The loans go up for a few days for investors to ask questions and look at the due diligence Lending Club automatically performs for you. Once the loan is fully funded, it’s issued to the borrower. The investors then receive principle and interest payments every month. If you’re clever, every time you get another $25 you can reinvest the money into another loan. That’s how I built up a portfolio of over 60 loans within a year.

Lending Club has funded nearly a billion dollars worth of loans so far. That’s a lot. They have received over 725,000 loan requests. Of those, only 10% have been accepted by LC. Lending Club reports that:

As of September 18, 2012, the average Lending Club borrower shows the following characteristics:

  • 715 FICO score
  • 14.53% debt-to-income ratio (excluding mortgage)
  • 15 years of credit history
  • $68,967 personal income (top 10% of US population) 2
  • Average Loan Size: $11,958

Most of the people I’m lending to have a higher annual income than I do!

Where does Lending Club make their money? They usually take 1% off of the interest, so if the note is for 15%, you’ll only see a 14% return. Still, not bad for the service their providing and the returns you’re getting. And they do all the background investigation work! Too easy!

So how do you liquidate your assets if you need to? There is a secondary market for loans offered through FOLIOfn. Here, you can list your loans with a few mouse clicks. I’ve never had any trouble selling loans for their face value within a few days and can often get a bit of the interest paid as well. You can also purchase loans from other investors on here as well.


Since starting with Lending Club, I’ve seen a net annualized return of 8.35%. I’ve had two loans default or get charged off and I’ve had over 10 loans paid in full. My results are actually a bit below average, which might be accounted for because of the large amount of A and B grade loans I invested in to be conservative. Going forward, I think I’ll try some C, D, E, F loans, as they offer a higher return for a bit more risk.

If you have any questions about my Lending Club experience, feel free to ask on Twitter, Facebook, or right here in the comments. I’ll answer every question I see!

So what are you waiting for? Click the banner below and start earning excellent returns while helping out your peers!

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Lending Club Review – 1.5 years, 8.35% return, 2 Defaults

6 thoughts on “Lending Club Review – 1.5 years, 8.35% return, 2 Defaults

  • October 4, 2012 at 06:07

    Great piece! I’m looking forward to expanding my own LC portfolio! Thanks for a more long-term view with your own results!

    • October 4, 2012 at 10:42

      Thanks for the feedback Mike! It’s tough seeing those defaults in there, but seeing the net return above the average historical stock market return is comforting as well.

  • October 6, 2012 at 04:34

    I am wondering why do you now want to invest in riskier loans? As I understand from your post, you got in to LC because there were not much return from banks. Why are you not satisfied with 8X with LC and want to have more return from LC?

    • October 7, 2012 at 17:57

      Anil – I’m looking to begin investing in riskier loans because I believe they provide the best reward:risk ratio. If you look at the returns by loan grade on Lending Club’s website, you can see that the return (after fees and defaults) for loans increases as you move up the grades, but the percentage of loans defaulting doesn’t increase as fast. So while A and B grades loans may provide less risk of default, they also don’t provide as much return. I think C, D, and E provide the best mix of risk/return while still keeping the number of defaults down.

  • February 23, 2013 at 14:15

    I have been with LC since 2010 and I have both IRA account and individual .I have to many defaults special in IRA account because is more money in there which is no good at all! but still pull almost 7% in IRA and almost 10% on individual which is good. So make sense to invest with them. good luck!

  • February 23, 2013 at 14:20

    By the way! go to 60 months ONLY is more interest,make sense since you invest for long term.


What are your thoughts?