Lending Club Review : Peer to Peer Lending

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Lending Club Review

Our Rating


The Bottom Line: Through personal loans, auto refinancing loans, business loans, and medical financing LendingClub offers the borrowing and investing solution right for you.

Banks and other financial institutions capitalize on the interest made by loaning money to borrowers for auto loans, credit card balances, and more.

With Lending Club, you can experience those gains for yourself. Read this to learn how.

Lending Club icon

Quick Summary

Account Minimum: $1,000

Fees: 1% - 6%/yr

Promotion: Get up to 100K United Miles (when you invest)

How Does Lending Club Work?

LendingClub is a peer-to-peer investment platform for consumer credit. Everyday people can use the platform to loan money to others and collect interest as a form of investment. 

There is no bank involvement, meaning the investments are not FDIC insured. But over two-thirds of applications get denied by LendingClub, which speaks to their risk management.

 You can invest in loans for small businesses, refinancing autos, medical expenses, and more. The investments will give you 12 months of principal and interest payments every year, so long as the borrowers don’t default.

What are Notes on LendingClub?

When someone requests a loan on LendingClub, it is broken into smaller pieces, called Notes. Notes can be as low as $25 each.

Investors can diversify their portfolio by selecting a variety of Notes from different borrowers and loans.

LendingClub Notes

Notes are added to the platform at 6 AM, 10 AM, and 2 PM Pacific time every day. If the available investments don’t meet your needs, just check for new options frequently.

The best Notes tend to go fast, so checking around the times that new Notes are added may be critical to creating your best portfolio.


Applicants can apply for LendingClub loans online. First, the borrower will answer some questions about themselves including employment and income information.

Then, they will select a loan type from the following choices:

  • Refinance credit cards
  • Consolidate debt
  • Purchase a home
  • Refinance car
  • Home improvement
  • Buy something special
  • Fund a green loan
  • Finance my business
  • Pay for vacation
  • Pay to move or relocate
  • Cover medical expenses

If none of the choices above describe the type of loan, they can still apply. LendingClub loans are ideal for simplifying debt with a single payment, refinancing debt with a better interest rate, or funding projects.

Borrowers can receive loans at amounts between $1,000 and $40,000 for 36-60 months. The loans feature fixed monthly payments and fixed interest rates. 

Interest rates are between 6.95% and 35.89%. The rate that you receive is based on your FICO credit score. Borrowers must have a FICO score of at least 660 in order to be approved.

Applying for a loan only generates a soft inquiry and therefore won’t impact a borrower’s credit score.

If a borrower defaults on a loan, however, it is reported to all three reporting agencies.


Individuals looking to invest with LendingClub can easily apply online. Here are some things to know:

  • Your gross income level must be at least $70,000, or $85,000 in California
  • Your net worth must be at least $70,000, or $85,000 in California
  • There is no income requirement for those with a net worth of at least $250,000, or $200,000 in California
  • Not available to those in Alaska, New Mexico, North Carolina, Ohio, and Pennsylvania
  • Investors in Kentucky must be qualified as an accredited investor under the Securities Act of 1933
  • Must invest at least $25 per note
  • Investors have several options when opening a new account. Here are the different types of accounts you can open on LendingClub:
  • Individual
  • Joint
  • Traditional IRA
  • Roth IRA
  • Rollover IRA
  • Trust
  • Corporate
  • Custodial

After setting up your account online, you can fund the account using electronic transfers via your bank or by mailing a check.

Once you’ve funded the account, you can begin selecting your Notes. Keep reading to learn how Notes are categorized.

Interest Rates and Returns

Historically, LendingClub investors have seen returns between 4-8%. To have the best possible chance of seeing a positive return, it’s important that you diversify your portfolio.

99% of portfolios on Lending club with 100 or more Notes see positive returns.

The interest rates that borrowers pay are based on their individual credit scores. Notes are graded from A1 – E5. A1 Notes are the least risky.

The risk increases as you get closer to E5 Notes, which are the riskiest category.

Here are the going interest rates available to borrowers in each Note category:

LendingClub Note interest rates

LendingClub investors can benefit from the “higher risk, higher reward” mentality.

Here are the average rates of return broken out by Note category:

LendingClub Returns

But that doesn’t mean investors should put all their cash into lower category investments.

Remember that Notes in category D are associated with borrowers who may have a poor credit history or have defaulted on loans in the past.

Lending Club Fees

Investors could incur two different types of fees on LendingClub. Service fees are assessed on all payments.

Collection fees are only assessed on amounts collected after late payments or defaulted loans. Keep reading to learn what to expect in each scenario.

Service Fees

LendingClub charges investors a service fee on each borrower payment that is received. It is equal to about 1% of the amount of any payment received within 15 days of payment due date.

Investors won’t pay a service fee if the borrower misses a payment.


Investors aren’t penalized if a borrower prepays all or a portion of their loan within the first 12 months after the Note is issued.

The service fee is limited to 1% of the borrower’s regular monthly payment amount rather than 1% of the entire amount paid.

Collection Fees

3. Other collection fees charged by LendingClub or a third-party collection agency will reduce the payment amount investors receive to the Note, such as when a loan is charged off

Investment Strategy on LendingClub

Investors can choose an investment strategy based on their preferences and the time they want to put into building a portfolio.

Keep reading to learn three different ways to diversify your portfolio with LendingClub.

Platform Mix

This is an automated investing strategy that allows LendingClub to allocate your portfolio across all Note grades.

The projected returns and charge off rates are typically in line with the overall platform performance.

It’s a broad-based investment strategy that allows a completely hands-off approach to investing in Notes.

Custom Mix

By selecting a custom mix, you’ll allow LendingClub to automatically choose investments based on your customized allocation preferences across Note grades.

You can choose your Note mix based on projected returns, historical returns, expected charge off rates, and other variables.

Custom mix investing lets you diversify your portfolio based on your risk tolerance while still allowing LendingClub to build your portfolio automatically.

Manual Strategy

It might be better to manually choose the Notes that you want to invest in. That way you can personally evaluate each option and select the Notes that closely align with your preferences.

You’ll be able to compare grade, subgrade, loan purpose, interest rate, and borrower information.


With a manual strategy, you are trying to decide if each investment is a good credit risk and if it’s likely that the individual will pay back the loan.

Here are some things you can consider:

  • The interest rate of the loan
  • Minimum length of employment of the borrower
  • Debt refinance: new business funding may be a higher risk than individuals consolidating debt
  • Loan term: longer terms may yield a higher projected return, but come with more risk of default
  • How the loan funds will be used, or loan purpose
  • Debt to income ratio: the amount of income the borrower currently puts towards debt
  • Credit score
  • Delinquencies reported in the past two years
  • Any public records that have been reported
  • Inquiries in the last 6 months: more inquiries may indicate financial trouble
  • Review status: whether Lending Club has checked their information for accuracy
  • Monthly income of the borrower
  • Verified income

Lending Club Investing Risks

Low Liquidity

LendingClub has a secondary market where you can sell your loan. But that takes time and you may not get the best return. The Notes offered on the platform are meant to be kept for the life of the loan.


The Notes on LendingClub aren’t FDIC insured. Just like with other investments, they bear the risk of losing the investor’s money.

Economic Instability

Recessions create a financial hardship. If a recession hits, loans could be at a higher risk of default.

Early Pay Off

In general, it’s a positive sign when borrowers can pay off their Notes early. But if that happens, the investor will lose out on some returns.


Interest rates on LendingClub loans are fixed. If inflation rises significantly, it could impact your rate of return.

If your rate of return is high enough, however, inflation won’t have as large of an impact.


The normal fee associated with LendingClub has stayed around 1% for some time. But if their costs rise, they could pass those expenses on to investors.


Lending Club has a strong financial background. But there is always a risk that they could go bankrupt.

Lack of Diversification

A single default can impact your returns if you have less than 100 loans. The more Notes you have and the more you diversify, the less you’ll be impacted by defaults.

Loan Pricing

Loan prices are determined by LendingClub’s evaluation of the borrower’s risk. There’s a chance that their evaluation doesn’t result in proper pricing and your earnings could suffer as a result.

Tax Implications

Retirement accounts are generally tax-deferred. Interest and other payments that are received through a LendingClub investment account are otherwise taxable.

Secondary Market

You can potentially sell some or all your Notes on a secondary market ran by Folio Investing. If you need access to cash quickly or can’t hold the investments until maturity, the secondary market is an option.

But there is no guarantee that you’ll find a buyer. It’s important to note that the secondary market is not available to residents in all states.

Investors can also check the secondary market for new investments rather than limiting themselves only to the new loans found on LendingClub

Pros and Cons


  • Potential for higher returns than traditional investing or bank accounts
  • Access to consumer credit investments
  • Many filter options to help narrow down Notes within your preferences
  • Free automated investing options if you’d rather have LendingClub select Notes for you
  • The secondary market is available in case you need cash before your investments mature
  • Borrower’s credit information is verified by LendingClub


  • Consumer credit as an investment option is relatively new and untested
  • Long-term and non-liquid investment option
  • Returns are not fixed like CDs obtained through banks
  • Note defaults will decrease returns
  • 1% annual fee for using the LendingClub platform
  • Manual investing options require time and effort for upkeep


Through personal loans, auto refinancing loans, business loans, and medical financing LendingClub offers the borrowing and investing solution right for you.

Lending Club icon

Should You Use Lending Club?

LendingClub provides investors an opportunity to capitalize on the world of consumer credit. 

Borrowers looking to consolidate debt, finance a small business, and much more can apply for a loan through LendingClub. The loan is segmented into many Notes, which are a minimum of $25 each.

Investors can purchase the individual Notes to help fund the borrower’s loan. Then, they receive monthly payments with interest on the Notes that they’ve invested in.

The loans are unsecured. If a borrower defaults on a loan, investors’ earnings will suffer. That’s why diversification is key. The more you can diversify your portfolio on LendingClub, the better chance you will have at seeing positive returns.

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