Lending Club Review: is it Legit or a Scam?

February 2012

Lending Club is part of the new wave of peer to peer lending, which means individuals lending to other individuals. It was founded in 2006 and the website launched in 2007. For borrowers, it’s a great alternative to traditional banks. If you’re looking to invest, it’s a great way to diversify.

This Lending Club review will be from the point of view of someone wanting to invest but contains useful information either way. If you have concerns regarding Lending Club’s legitimacy, hopefully this article will clear the air, whether you’re looking to lend or borrow.

Also, I must say that I’ve personally had an account at lendingclub.com for about a year now and that this is not a paid review. I aim to look at the company objectively, the same way I would if I didn’t already have an account.

No matter what, I hope you find the information helpful.

You can skip over to a section you are interested in by clicking on of these links:

-How does Lending Club work?
-The Executive Team
-Interesting statistics
-What kind of returns can I expect?
-What if they go out of business?
How Does Lending Club Work?

I’ve never borrowed money through Lending Club so I can’t speak on that front.

Lending money though is easy. It doesn’t take a genius to figure things out. The interface is clean and navigating through it is painless. In fact, I’m just now realizing that I don’t even know if they have a tutorial on how to use the website because I’ve never had any problems. I think that says a lot about the quality of the website.

After registering, you’ll need to fund your account. I’d suggest going with a wire transfer because it’s the fastest, easiest and most painless way of doing that. By the way, when I was looking around, Lending Club was the only place to have the wire transfer option but that may have changed by now.

Once that’s done, you can start looking for notes to invest in. There are always a lot of notes available. To go through them, you can use filters that narrow down the search results to your specifications.

I’m counting 26 filters total, including:

-Max Debt-to-Income Ration
-Number of Credit Report Inquiries in the last 6 months
-Public Records
-Term (36 or 60 month)
-Verified Income (I believe income gets verified before the loan gets approved anyway)
-Revolving credit balance
-Delinquencies (Last 2 years)

The list goes on… All the information is available when you click on a loan, but filtering out notes that you wouldn’t be comfortable investing in makes everything easier and a lot faster.

I use the same filter every time and it takes me 5 minutes to find notes I like and that’s taking my time.

When you find one you want to invest in, you just click “add”. It’s then a 3 click process to confirm the order and you’re done. Honestly I spend less than 10 minutes at a time on the site.

The last thing here would be to mention that the minimum amount you can invest in any one note is $25. The amount goes up from there in $25 increments, meaning you can invest $25, $50, $75, $100… I don’t know of a maximum amount. Being able to invest as little as $25 at a time is nice, it allows you to really spread out your risk.

The Executive Team

Lending Club CEO and Co-Founder is Renaud Laplanche, a Frenchmen. The fact that this guy is involved should be enough to convince you that Lending Club is legit.

He’s appeared in top publications such as The Wall Street Journal, Barron’s, The New York Times, BusinessWeek, and has been featured on CNBC, just to name a few.

Mr. Laplanche is top notch. He’s a former Senior Associate at Clearly Gottlieb & Hamilton, a New York based law firm, and in 2002, received the HEC Entrepreneur of the Year award. HEC is the top French business school.

To top it off, prior to Lending Club, Laplanche was the founder & CEO of TripleHop Technologies, a software company acquired in 2005 by no less than Oracle Corporation.

CFO: Carrie Dolan
Before Lending Club she was the Treasurer for the Charles Schwab Corporation. In 2003 she was involved in launching the Schwab Bank where she also served as CFO. That’s not all. Prior to Schwab, Dolan was at Chevron where, among other things, she helped launch the Chevron Credit Bank, served on the board of directors and as CFO. You decide…

Honestly, the people on this team are nothing short of impressive and each one of them has more experience and credibility than the next. If you feel the need, you can find out more about Lending Club’s Executive Team.

Interesting Statistics

Find up to date and detailed statistics by clicking here.

As of 02/21/2012, Lending Club has issued $526,830,400 in loans, spread across 47,444 individual loans, and investors have received $44,410,660 in interest.

Since 2007, the average rate of return for investors has been just about 10% but that number seems to be going up. Not bad considering the fact that as an investor, you receive payments every month and can instantly turn around and reinvest that money, which leads us to our next and most interesting part.

What Kind Of Returns Can I Expect?

In this section, we are going to do a little math. I know, awesome…

Let’s use a hypothetical situation as an example.

Let’s say you have $10,000 to invest. You decide to spread that money over 10 notes. For our purposes, the number of notes invested in doesn’t matter.

To keep it simple, let’s assume that every note has a 36-Month term and that they all have an annualized rate of return of 10%. That’s 30% over the 3 years.

We get $10,000*30% = 3000, which means that if you don’t touch anything, in 36 months, your account will be worth $13,000.

But that’s boring and you’re getting monthly payments on each note. That’s $13,000/36 = $360/month. After the first month, you take that money and invest it the same way. Now that $360 is going to bring in $13/month.

Next month’s payment will now total $373. You take that, invest it the same way again, and the next month’s payments would total $386.5.

You do this every month and after your first year (not counting the first month where you won’t receive payments), you would be receiving monthly payments totaling about $530.

That’s more than a 40% increase in monthly payments.

Now I didn’t sit down with pen and paper and write it all down, and if you feel like it, do it. My math may be a little off but even 25% would be great. And remember, we are assuming a 10% annualized rate here. What happens if you invest in 15%+ notes?

To put things into perspective, consider this: if you were to do this every month, without funding your account further, or taking any money out, in 10 years, you would be getting monthly payments totaling $10,000 and growing.

Pause and think about it.

Now forget about these numbers, they don’t mean anything. The whole purpose of the example was to show you how powerful this can be in the long run.

We’ve all heard about the power of compounding as in relates to the stock market and mutual funds.

Lending Club allows you to do that on a monthly basis. It takes compounding interest and puts in on steroids.

What If They Go Out of Business?

Apparently this is a common question. Common enough for Lending Club itself to answer it here.

Essentially, if they ever stop servicing loans, they have an agreement with Portfolio Financial Servicing Co. (PFSC) that would ensure the servicing of all issued loans. You can check out PFSC at pfsc.com.

But it doesn’t look like they are going anywhere and why would they? They have a great business model and both lenders and borrowers seem to be more than happy with the services offered. I know I am.

 

 


4 Responses to “Lending Club Review: is it Legit or a Scam?”

  1. LagunaFrugal says:

    Thanks for the review. Do you have any thoughts on Propser vs Lending Club?

    • admin says:

      I’ve never used prosper.com so I can’t really say. I know I looked at them first and was going to use them but then I stumbled upon Lending Club…

  2. Thrilla Manilla says:

    Best lending club review out there. Thank you!

  3. Stanley says:

    Thanks for the review! Nice and detailed!

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