Investing $100,000 with Lending Club PRIME

Why so much money?

Well, it was just sitting in a savings account earning less than 2%, and I need to diversify my investments a little, but I’m not ready to go back into the stock market yet. I realize there is risk involved with holding a personal loan portfolio, but I’ve met the Lending Club team, and I feel confident in their tactics and processes to minimize that risk.

I’m looking now for investments that generate cash, and Lending Club fits that bill.

Setting up my Lending Club PRIME account

I didn’t want to choose dozens of loans on my own, and since Lending Club was waiving the normal .8% PRIME loading fee, I decided to enroll in their PRIME program.

The PRIME program allows Lending Club to invest on my behalf, which is exactly what I’m looking for. I want a hands off, low risk approach to this pretty significant chunk of money.

They were also offering a bonus on deposits, so I took advantage of that : )

Filling out the forms

I talked with Chris, a client analyst, and he sent me over the form (Prime Investment Account Order Form) that allows Lending Club to invest on my behalf. I figured there must be something to sign to allow them to pick loans for me.

The form has you specify what interest rate you want to show for (and thus how much risk you want in your loan portfolio). The options were: 11%, 13%, 15%.

I went with the lowest risk option, shooting for a 11% return.

Funding Notes

Once I had faxed the form back, the Lending Club team started investing on my behalf in notes in my risk range, in $250 increments.

The process took about 3-4 weeks to fully complete. I imagine with smaller amounts it would be quicker. Larger amount would probably take a little longer.

3 Months Later…

3 Months into the PRIME program and things are looking very good. It’s very hands off, as new payments come in, and I have cash sitting in my account, it gets auto-reinvested about once a week.

I get an e-mail every time that happens, but I don’t have to do anything myself for that to happen. I think that’s probably the best feature of PRIME accounts, once you’re setup, your investments just run on auto-pilot according to your interest rate selection.

Any Defaults?

So far, not yet. But it’s only been 3 months, and I expect with the sheer number of notes that I have invested in (446 as of today) that I will have a number of defaults. I do have one loan that is in the 15-day late category, but hopefully that will get back to current soon.

Diversifying My Investments

As I look into more investments beyond just a savings account, I’m going to get pretty creative. Lending Club is pretty strait-forward, but it is not conventional by any means. I figure as long as I end up with a 5-6% return, I will be happy. There is just no way to have your money work for you sitting even in a so-called high yield online savings account. The rates are just too low right now.

I still plan on staying away from stock investment for the time being. At some point I may look into some dividend stocks for the cash-flow, but for right now I’m sitting on the sidelines. I was pretty much the worst stock investor ever, so I’m very, very hesitant to ever commit a large amount of money to something that I don’t know and understand inside and out.

To sign up for Lending Club Prime: Click HERE

Lending Club Definitely Not Dead – S-1 Filing Goes Public

Jun 20, 2008

I got an e-mail from Lending Club earlier, with an update on their SEC filing. Here’s the e-mail:

We filed with the SEC earlier today. You can read the registration statement on the SEC Website at www.sec.gov. This is an important step in the process that we announced on April 7. Until the registration process is complete, we continue to be in a quiet period and are not at liberty to disclose more details on the process and timing. Please find below the text of our press release.

Kind Regards,

Patrick Gannon

Lending Club Files Registration Statement with the SEC

SUNNYVALE, CA – June 20, 2008 – Lending Club announced today that it has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 relating to its social lending platform.

The registration statement seeks to register the offer and sale of up to $600,000,000 in Member Payment Dependent Notes to be issued by Lending Club in a continuous offering following the effective date of the registration statement. The Notes will be issued in series with each series of Notes corresponding to a single consumer loan to a borrower member. Lender members will direct Lending Club to apply the proceeds Lending Club receives from the sale of each series of Notes to fund a particular consumer loan selected by the lender member originated through the Lending Club platform.

A series of Notes will be issued only if and when the corresponding member loan closes and is funded. Lending Club will have an obligation to make payments of principal and interest on the Notes only to the extent that Lending Club receives payments on the corresponding member loan. The terms of the Notes, including interest rate and initial maturity, will correspond to the terms of the corresponding member loans but will reflect a four business day lag on payment dates and maturity to allow the platform to confirm payments received on the corresponding member loan.

Lending Club will offer the Notes only through its website directly to lender members.

A registration statement relating to these securities has been filed with the Securities and Exchange Commission but it has not yet become effective. Copies of the Lending Club registration statement can be accessed on the SEC website: http://www.sec.gov/. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such state.

I found the SEC S-1 Filing: http://www.sec.gov/Archives/edgar/data/1409970/000089161808000318/f41480orsv1.htm

It’s got some interesting stuff in there for sure. Still combing through it, but so far a few highlights…

Lending Club S-1 Highlights

  • 5.6 million in cash (see the balance sheet towards the end of the filing) – definitely not dead there.
  • Registering $600 million in member notes (Prosper’s dead S-1 was for $500 million)
  • Talk of working on resale (secondary) market as already in progress.

The SEC now has 30 days to respond to the filing. Assuming no hiccups there, Lending Club should be back taking lenders soon. Which would make me happy since I was making a decent little chunk of change each month from their referral program.

Lending Club’s New Stats Page is Yummy

Oct 22, 2009

If you’re a visual learner, you’re going to love Lending Club’s new statistics page.

The new page takes all the granular, nitty gritty data that Lending Club collects on it’s borrowers and lenders and turns it into a beautiful, almost sensory, colorful experience.

Lending Club's new stats page

Lending Club's new stats page

Data Highlights

  • 79% of Investors are earning returns between 6% and 15%
  • Lending Club has issued over 61 million in loans to date
  • 58% of Lending Club borrowers use their loan to consolidate or payoff credit cards
  • The highest returning loan purpose? Renewable Energy Financing at 10.58%
  • The lowest returning loan purpose? Moving Expenses at 4.59%
  • “E” credit grade borrowers are providing the highest average return of 10.88% (“A” credit grade is the highest)

Get $25 to Lend at Lending Club

Lending Club is still giving you $25 to lend if you sign up using this link.

My Lending Club returns

My current return with Lending Club is at 9.15%. I’m going to be moving a decent chunk of my cash fund into Lending Club in the next month.


My take on Lending Club’s SEC Registration

APRIL 12, 2008

my two cents on lending club

I started writing on the Lending Club blog last summer. As my home was in foreclosure and I was preparing to live in my office it was the break I was looking for. It started out just as a writing gig, but the extra money was desperately needed. In fact the day I found out I got the gig, I wrote this post about it being part of a turning point in my whole story.

And this week, with the announcement of Lending Club’s SEC registration, and suspension of new lenders, I was astonished by the lack of basic research that was done by many p2p lending and personal finance blogs.

Many blogs that I highly respect for their tips on saving, investing, frugality, seemed to completely miss the mark on Lending Club’s registration.

I am not a Lending Club employee and what follows is purely my own speculation of what Lending Club is doing based on my personal analysis (keep in mind I was a business finance major in college, and I used to read annual reports for fun).

Lending Club is not going bankrupt

That’s just an absurd notion. Why would they continue to fund loans during this quiet period if they were low on cash? They list 22 employees on their website. They just raised 10.26 million not 8 months ago. From my observations they are not spending outlandishly. Even if they were at a 400K/month (high estimate) burn rate, that still leaves plenty in the bank.

The abrupt stop in allowing new lenders was necessary

Sure, it sucks to wake up to an e-mail that says “no more referral program, no more lenders”. I made $325 just in March from the referral program. But as far as I understand you can’t give advance warnings on this type of stuff. So, yes it was abrupt, but to assure their registration gets approved, the abruptness was essential.

Lending Club will stay a P2P Lender

I would be shocked if they had any intention of moving away from their current model of matching lenders and borrowers. Look at their growth numbers below – why would they stop now?

Referral program will be back

Right before the announcement I was working on a project for Lending Club that involved the referral program. The implementation of this project has been pushed back, but I am still working on it and I would know if the project was canceled. I imagine the referral program will be coming back as soon as the quiet period is over.

Secondary marketplace? Heck yes.

This is the exciting part of this process that many lenders have been hoping for. The establishment of a secondary market within the peer lending community. It is clear that a registration of the p2p loans as securities would allow Lending Club to establish a secondary marketplace. So, if after a year you no longer wanted to hold onto loans in your portfolio, you could resell them to other lenders in the community. It would add liquidity to the marketplace.

Prosper’s S1 Filing is dead

If Prosper’s S1 filing had been successful, to create a secondary marketplace, we would have heard about it by now. I have an e-mail into Prosper following up on their filing, but unless they have some startling news, I think their offering is dead (probably because they didn’t take the steps LC is taking now).

Lending Club is growing

During this quiet period their growth will understandably stall. But if you look at their numbers, they are growing like a weed:

lending club growth

OK, that’s I think about everything I wanted to get off my chest. I hope my insight helps clear a few thing up. They are a good client for me, and I’ve enjoyed getting to know the team over the last 9 months. I’m positive they will be back strong with some exciting stuff once this period is over.

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  • Melinda

    I wish I could do this! Apparently you can’t do this if you live in Texas. :(

  • http://earlyretirementextreme.com Early Retirement Extreme

    With 400 ongoing loans, that’s a lot of potential defaults to deal with. The paperwork for defaulted loans during tax season is really a hassle. I used to have 10k going with a certain other P2P operation and it wasn’t much fun. For high risk loans, I prefer ETFs that deal in corporate junk or emerging market sovereign debt. Yields around 10%.

  • Patrick

    I also have an account with Lending Club and had them invest for me via the PRIME program. The only I thing I didn’t like was the $250 increments. I wanted to lower my risk by lending in $25 to $50 increments. I also started sticking with A rated borrowers after getting a few defaults and late payments with C and B borrowers. So I stopped using the PRIME program and started picking my own borrowers which is really easy and fast. It takes less than 2 minutes to find new loans. I don’t research the loans. I just pick A rated borrowers who want 36 months and that’s it.

    But so far I really like Lending Club and hope things continue to go well going forward!

    I do want to put more money into Lending Club but they are not profitable as yet which concerns me. Would hate to have my money tied up in a bankrupt entity! However, in speaking to one of their reps, they should be profitable soon! When or if this happens I’ll invest more money.

  • Beejay

    However you look at it, such a non-commercial lending scheme is a lender of last resort for some people. Banks won’t lend them any more money, family won’t lend them any more money, so they go to a lending club. It is high risk lending, or in other words a high risk investment.

    When some transactions go well, you easily forget that it is a high risk investment. Usually the effective interest rates are way above what you get at a bank. Why would that be? Could it be because there is a much higher risk?

    Now they tell you that you don’t need to invest in an individual loan, but you can invest in a bundel of loans, and this reduces your risk. If one lender defaults, the effect on your investment will be very limited.

    O, o, o, where did we hear this story before?

    Did not investment banks (Lehman Brothers e.a.) tell us that is was very safe to invest in bundels of mortgages, because if only one of the lenders defaulted it would have hardly any effect on the whole bundel?

    Have you noticed that espesially the USA is now in a crisis because of such thinking?

    You want an other crisis for yourself?

    If so, please invest your whole capital is such a lending scheme.

    What if the management company of such a scheme collapeses? (In Europe this has actualy happend, they had to invest a lot in ict, and the small income per participant could not cover the costs).

    You are putting all your eggs in one basket.

    Now i am allmost the stupidest man in Europe, but I still would not follow your example, I hope you don’t mind that.

    I do like your blog, and will continue reading it.

  • segfault

    Debtkid,

    I’m concerned to read this post. I agree with the above poster who says that you’re putting all of your eggs in one basket. If you still owe your mother $90k, why are you speculating on Lending Club loans? Other people who have invested in P2P lending have had to cope with very significant defaults. How will you feel if $20,000 of your loans end up being charged off?

  • Mike Stock

    You are making an extraordinarily bad mistake in judgment. This is a very bad idea.

    You will regret involving yourself in this….endevor.

  • http://www.jutiagroup.com Steve

    I think you’ll be fine. I’ve been lending with LendingClub for about 3 years (after a bad experience with Prosper’s network) and I have yet to see a default on 230+ loans. I invest primarily in A and B loans (+9.11%). I pick the loans myself with the following in mind (no delinquencies, no public record, steady and good paying job, can write an intelligent borrower profile, low debt-income ratio, and a low revolving line utilization percentage). Doesn’t take up too much of my time (maybe 10-20 minutes per week).

    Wish you the best on LC (just remember to keep enough cash on hand in the bank – even if you have to suffer with low rates for a while)

    -Steve

  • Romario

    I thought you were planning to give back your money to your mom. I don’t think you can withdraw the money from LC (at least I couldn’t with Prosper), you are locked in for 3 years. You are getting the %% back, but it takes 3 years to go through.

    And 3 months is not really indicative, you should wait at least a year to see how it goes. My prosper investment was good for ~1 year, then as economy became worse more people started defaulting. The return is approximately -5%

    http://www.ericscc.com/lenders/Romario_

  • Sparky

    I’d love to keep up with you and your investment. I’ve been with Lending Club for a little over 1.5 years now. I don’t have the net worth to allow me to loan at 100k yet, and I kept things pretty small for the first year (about 2k) as I tested the water. Now, I range between 30k to 50k invested at any given time (There haven’t been as many “good” notes available on Folio lately). Right now I’ve got about 40k invested and am thinking about leaving the money in for a little longer time period.

    Using Folio aggressively and choosing notes personally has allowed me to make about 10k so far. That’s net of the $100.00 I’ve written off, and I have about $500.00 dollars worth of notes on payment plans now (which isn’t all that bad I suppose. They are all paying interest only at over 19%). The problem is it’s time-consuming. I wonder if matching my Folio strategy with the Prime program would help me out? Not sure.

    By the way, what do you think about the new 60 month notes? Has anyone sold any of them on Folio? How much over/under face value?

  • http://www.rebatesmoney.com/ Lop at Rebates Money

    Wow! $100K just like that huh?! Pretty bold, but hey, the greater the risks the greater the rewards. Good luck with your return!

  • Dan B

    The only thing that makes me nervous about LC is the fact that we’re not investing in a bunch of loans but rather a bunch of loans that are all obligations of LC. If LC goes under for any reason all of us will be standing at the back of the long line that reads “Creditors of LC” quite a few spots behind the people who lent $$ to start LC & keep them going the last 3 years. And this is on top of whatever risk we’re taking in terms of individual notes defaulting.

  • Evan

    I don’t think Lending Club’s “Net Annualized Return” is the same as the APY on a CD. I did the math and according to my calculations, a 3-yr B-rated note at 10.75% interest is about a 5.2% APY investment. Or maybe I did my math wrong, but if so, I’d like to see your math.

  • Joe

    @Evan – I think you are correct on your calculations, however, keep in mind that you are receiving cash for every monthly payment. So that $250 you put into that note after one year is no longer $250 vested. You’ve got a portion back. If you reinvest it, it will continue to work, but if you keep it cash, then yes, the APY on that “original” amount will go down, but at the same time, the amount at risk is less.

    @Dan B – You have a good concern, however, I think the loans are issued out through a bank.. so it’s not like if LC goes under, than everyone who has a loan through them doesn’t have to pay their bills. It’d probably be a mess, but the loans would still be active and get paid. Sorting out the mess would be the problem. Even so, I THINK this is how it would go.

  • Philip

    Hi, I love your lending club articles. Could you give us an update on the 100k? Also, if you had 100k in cash and you still have debt, why wouldn’t you just pay off the debt asap?

  • Displacedmic

    You owe your mom 90k and you tied up monies in a 3 year higher-risk investment? if i were her i would kick your ass. if she has lent you that money at little or no interest you basically just invested the money for her – assuming you’re planning on paying her back with interest.

    I could understand using that money to pay back DEBT, starting with the debts with the highest interest and moving down, but to make an investment with that money and a riskier one at that seems unethical to me.

    As a parent myself I would give anything for my kid, but i don’t think i would allow him so much rope as to hang himself. i would have called that debt in if i knew what you are doing. i wonder if that would be the case with her as well?

    i sincerely hope it works out – i admire your honest approach to this difficult time. you are clearly trying to move in the right direction :-)

  • http://www.outcomesnow.org Matt

    Any update on how your experiment is going now that it has been a few more months?

  • http://blog.richbythirtsix.com Joe

    If you live in Texas you can still sign up for a trading account. You won’t be able to invest in notes when they are originally funded but you will be able to buy and sell existing notes. A lot of the time you can get much better deals through trading anyways.

  • Brian

    How’s this going?

  • Dwayne

    I am currently a borrower on one loan and in the process of getting another one. I don’t know about other people but my feeling about Lending Club that if something happened and I lost my income (Retirement, should be safe) I would pay LC before I would pay my credit cards. I know how I would feel and how it would hurt vs. a big bank.