How to Get Started with Lending Club

Over the past couple of years, I’ve been talking about peer-to-peer lending.  I’ve shared my returns each quarter (see last quarters’), and shared how I go about selecting the loans that I invest in via FolioFN.  One thing I haven’t talked about in detail is how to get started with Lending Club.  So let’s do that.  Let’s talk about how the strategies that you can use to get started with Lending Club.

What is Lending Club

Before we talk about strategy for investing with Lending Club, we need to briefly discuss what Lending Club and other peer-to-peer lenders are.  They act as a service for both borrowers and lenders.  As an individual, you can apply to get a loan, or you can invest in a loan.  If you’re getting a loan, the peer-to- peer lender will vet the loan for risk, and then provide that information, anonymously, to the prospective investors.  As an individual, you can also invest in the loans that have been vetted.  The borrower then repays their loan just like they would if it were borrowed from a traditional lender (banks, credit unions, etc) and each payment (with interest included) is split out to each of the investors.  In short, they make you and the other investor/lenders into the bank.  There’s a lot more too it, but that’s the basic rundown. Now, lets talk about three strategies that you can use to get started with Lending Club.

Go Big or Go Home Strategy

Getting Started with Lending ClubThere are some people who refuse to do anything on a small scale.  You know who you are.  If this describes you, this is likely the strategy that you will use.  Decide on the percentage of your overall portfolio that peer-to-peer lending will be, then calculate how much of an investment that means you’ll be making.  Deposit that amount into your Lending Club account and start investing it into loans.  Depending on the size of your deposit, it might still take a little time to get it 100% invested into loans, but you’ve got the full amount in the account and ready to go.  As you progress, you’ll also want to make regular deposits that match the % of portfolio that you’ve set for your investment accounts.

Slow and Steady Strategy

Some people really like systems.  They like to decide on a path, set the system that will take them down that path and rarely deviate from that system.  In this strategy, you still decide what the percentage of your portfolio that your Lending Club account will occupy.  But, instead of making one large deposit to assign it, you make several smaller, timed deposits to bring it up to the % of portfolio that you’ve decided on.  Each deposit will be invested as you go.  Ongoing deposits will likely be larger than they would be with the above strategy because you’ll be increasing the account balance to match the % of portfolio as well as including your amount of new investments.

Get Your Feet Wet Strategy

Some of you are still a bit leery of peer-to-peer investing.  You’ve heard that it’s risky.  You aren’t sure if it has a future, or, more specifically, if it has a future in your portfolio.  Maybe you like investing in high-value stocks and bonds and playing it safe.  But, still, you’re tempted.  Tempted by the rate of return that I and others are claiming to receive.  This is the strategy for you.  Instead of selecting a percentage of portfolio like the above two strategies, you want to just get your feet wet a little and test the water.  Decide, instead, on an amount of money that you want to use to test the waters.  At a minimum, it should probably be something like $125-$250 minimum.  That amount will allow you to invest in $25 increments and reduce your risk by having at least 5-10 loans in your account.  Using this strategy lets you feel the system out with a minimal amount to lose.  Even if you lose it all, it’s not a large percentage of your investments.

Get Started with Lending Club

As investors and stewards of our money, it’s important to find the best way to handle our money.  For many of us, that means finding ways to eliminate our debt, earn more, and invest smartly.  I’m not a financial adviser.  I’m just some guy that likes learning things about money.  I share those things, and my thoughts on them here.   One of the things that I’ve been using to grow my investment portfolio is Lending Club.  I’ve been very happy with the service, and I recommend it.

Which strategy do I use?  At this point, I still have significant debt.  I happen to believe that investing while you are in debt is not all that smart.  So, I’m more focused on my debt than I am on investing.  I’m still firmly in the get your feet wet strategy with my investments.  In the time I’ve been testing the waters, my portfolio has grown to quite a bit more than the minimum investment I suggest above, but that’s where I started, and that’s the strategy that most closely resembles my usage of Lending Club today.

If you’re thinking about getting started with Lending Club, be smart, know that there are risks, but I don’t think they are as bad as some would claim.  Know that, just like stocks, there is a chance that you will lose your entire investment.  Just like investing in stocks, that chance is pretty small.  I’m not an adviser (that hasn’t changed in the last two paragraphs) so if you’ve still got questions, and want professional advice, I suggest you talk to your adviser first.

I’ve consistently been getting returns on my money of 13-14%.  Even in the boom times of online savings accounts, the interest rates weren’t that high.  Heck, even if you believe Dave Ramsey and his 12% returns on stock investments claim, it isn’t that high.  Getting you feet wet in Lending Club offers a potentially good rate and, I think, is worth a try.

Original Image Credit: Feet by lukasberg, on Flickr

Lending Club Returns Update 3Q13

Another quarter has come and gone.  We’re bracing ourselves for the coming winter.  It’s also time for a check-up on my Lending Club account, and the returns I’ve gotten.  In my 2Q13 update , my account was showing a return of 14.08%.  Keep reading to find out if I’ve managed to maintain that rate.

No More Defaults

One of the other things that I wrote about in last quarters update was that my portfolio finally suffered it’s first defaulted loan.  In this quarter, I had a few loans that went into the late categories, but ended up coming back to normal.  I’m still a little surprised that I haven’t had more defaults.  I’m glad that I’ve been lucky enough to only have the one default since January, 2010.

Active Passive Income

Beating Broke Lending Club UpdateThe closer you get to true passive income, the less work you have to put into it.  Lending Club portfolios are not true passive income.  I’ve discussed it before, and it bears reiteration.  They are awful close though.  In all, I spend about 20 minutes a month to reinvest the payments and interest that have come in.  It’s not all at once, usually.  With the $9-$10 in interest that my portfolio is earning each month, that’s a pretty good wage.  Maybe it’s an active passive income stream.  Oxymoron for the win!

Lending Club Return Rate

Now, for what everyone has been waiting for.  (Or scrolled down really quickly for)  Without any further defaults, and staying on top of reinvesting the funds as they come in, I’ve been happy this quarter with my return.  As of 10/4/13, my current Lending Club returns rate displayed is 14.69%!  It’s bounced back nicely from the default.  I’ve been investing the funds a little more aggressively over this quarter which helps explain some of that.  At this point, my reasoning is that I’ve been investing with Lending Club since 2010 and have only had one default.  The risk is still there, I think, but I don’t think it’s quite as bad as some would like to make it sound.

Where will my rate be at the end of the year?  I’m hoping it will remain steady.  I’ll be maintaining the same Lending Club investing filter, and hope that doing so will maintain the low default rate I’ve been lucky enough to have.

How is your Lending Club portfolio doing?

Who Wants to Talk Stocks?

Stocks, and the stock market in general are not a normal part of the content here.  That’s almost entirely because I don’t have a lot of money invested in the stock market, and, as a result, I don’t do a whole lot of trading of stocks.  But, I do have a few accounts here and there, and I’ve managed to do semi-well with my investments over the long term.

But, I’ll leave it up to you.

The things you won’t get from any articles I write about stocks or the stock market:

  • Well analysed stock picks: Yeah, that’s just not going to happen.  At least not yet.  I don’t know enough about analyzing a stock in the way that a professional would.  If you want professional picks, try the Wall Street Stock Forecaster.
  • A well-rounded, balanced look at all of the stocks: Some of them, I just bought because I like the company.  More savvy investors will likely scoff at that, and maybe call me names.
  • No guarantees:  I can’t even guarantee that I’ll make any money on any of the stocks that I talk about, so I certainly am not going to guarantee you that the stock is any good.

What you will get from my stock/stock market articles:

  • Stock picks: Yep.  They might not be very well analysed, balanced, or even guaranteed to be any good, but that shouldn’t stop us from being able to discuss them.
  • Insight into my thought process when buying each of them: The what, why, etc of each of my stock picks.
  • Peace of mind: You’ll most likely have found someone who is a worse investor than you are.

So, what do you say?  Should we discuss my stock portfolio?  Leave a comment below and let me know!