If you’re interested in new and different investment opportunities, LendingClub is an option that may have some appeal to you. LendingClub is a peer-to-peer lending platform that can help you grow your money with relatively high returns and limited risk. As with any investment decision, it’s important to research and consider different opportunities and alternatives before making an investment. This helps reduce any unwanted risk and maximizes your potential for return based on your financial goals and risk tolerance. I’ve written this post to help you decide if LendingClub is a good investment for you. It’s organized to help you gain the understanding you need to help you make the best investment decision for yourself.
What is Peer-to-peer Lending?
Peer to peer lending is an arrangement where investors can make personal loans directly to individuals. There are no banks in between, and individuals operate through an online platform, like LendingClub, which facilitates the borrowing, lending and loan administration processes. Essentially P2P Lending cuts out the middle-man to help investors and borrowers keep more of their money. If you are looking for reasonable returns but don’t want the risks that come with owning real estate or stocks, an appropriate alternative is peer-to-peer Lending (P2P).
Investing in LendingClub
So you’re interested in P2P Lending, but want to know: Is LendingClub a Good Investment? To start from the very beginning, LendingClub is the biggest P2P lender platform. It is a publicly traded company, which speaks to the legitimacy and stability of the company (and its platform). LendingClub offers loans for various purposes like consolidating debt, paying off credit cards, business loans, home improvement and more. With LendingClub, multiple account options are offered to investors to help ensure an appropriate fit. Account types include Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, Trust, Corporate and Custodial (minor account). And with only a minimum of $1000, ($5,500 for an IRA), you can start investing with a small amount of money.
How Does LendingClub Work?
The way LendingClub works is by allowing investors to spread their money across multiple notes, which represent a fraction of a loan. That way investors can diversify their portfolio by investing in more notes, helping ensure their potential return and reduce the risk. Imagine a borrower is looking for a $10,000 loan for an urgent home improvement. Instead of going to a bank, they can get the loan from hundreds of investors on LendingClub through investments as small as $25. That way each investor only holds a fraction of the loan through notes, instead of bearing the entire risk. It’s like rent for money, where investors earn interest on notes. This reduces the risk for loss if the borrower defaults (when a borrower is unable to make payments towards their loan.)
LendingClub also offers an automated investing feature that selects your notes based on your own personalized desired interest rate mix. This is great for beginners or for investors who are trying to balance a diverse portfolio. But of course, like any investment opportunity, there is no guaranteed that all loans will be paid in full. There is always a risk.
The Risks of Investing
LendingClub investing has its own set of risks that include borrower defaults, annual fees (approximately 1% of payments made to investors for LendingClub), inflation, and liquidity. Basically, there’s a long-term commitment with the common risk being borrower default. But that doesn’t mean you should shy away from investing with LendingClub. After all, all investments come with risk, but you have to decide what risks you’re willing to take. With LendingClub you have the potential to earn more than other fixed income investments. It also doesn’t have the risk of ups and downs like the stock market.
Investing for Yourself
Maybe you want to invest because you want to own a home someday. Maybe you’re wanting to set yourself up for retirement or simply want to grow your money.
Whatever the reason, investing can be difficult if you don’t know where to start. Even if you already know a little bit about different investment opportunities. So take your time and research different types of investment opportunities and loan types. Become well-read on the risks and advantages that are specific to your financial goals. It also helps to know why you want to invest and to quantify the risks you’re willing to take. But if you’re still unsure or just want to be more secure with your finances, find an expert in the field like a financial advisor. This way you can build a stronger portfolio and feel more secure with your financial investments.
