After a loan has been funded the notes can be sold on Lending Club’s market and there is no longer that $70k restriction as it falls in the over the counter debt catagory. The con to this is that you have to pay whatever price the seller wants. I usually find that a 1 extra payment fee is what is asked. E.G. if its a $25 getting $0.80 payments every month they will sell it for $25.80. This will further erode your earnings.

2: However it raises a possible interesting strategy. Lending club takes their 1% cut when you sell a note and in the above example get $0.55 profit, 2.2% return. Lending club says it takes an average of 3 days and 20 hours to sell a note. If you did this every month and sold it before any default would occur, prior to the first payment failing, you could theoretically get 26% return. Doubtful the reality would be that but I find it interesting none the less.

3: There is a pro to not funding a loan but buying it off the market after the fact. You can see how the payment schedule goes and Lending Club continue to monitor their credit rating. My hope is I can avoid some risk of the people who don’t pay from the start or whose credit drops by 100+ points presumably from being late on other payments or from asking more credit and more loans elsewhere.

Still I agree. Its too early to tell and I wouldn’t really say I am investing with Lending Club as I am in playing around with it.

I think the repayable nature of these peer-to-peer loans is seriously unattractive as a lender, as I say.

Firstly, it makes judging the value of an investment and planning ahead difficult, as with all callable bonds.

My other concern is that the best individuals sort out their finances, repay their loan (even if by getting another cheaper one) the P2P lenders will slowly accumulate poorer borrowers who can’t or won’t repay… so the risk of a loan portfolio goes up over time?

This could feasibly be a bit of a timebomb for P2P operations – that their loan book is slowly deteriorating.

At the least there should be a small charge for early repayment – something most venerable high street lenders usually ask for, no doubt for this very reason!

You made a good comparison, but I feel that both have its place just as the S&P 500 index fund and the S&P Dividend index fund have their respective niches. At the end, it provides choices and possible diversification right?

1% is not low by any means, but it’s not considered high in the investment world. I do however feel that Folio’n (the place that lets you buy and sell the the notes) are ripping people off with the 1% charge.

@FS: I reviewed my current statement and it’s 1% overall invested, not your return per loan. See this page for more info:
https://www.lendingclub.com/public/rates-and-fees.action

@Mike: also cash balances are FDIC insured (not in the notes)
https://www.lendingclub.com/public/faq.action#l5

I really like the idea of peer to peer lending- a credit market that anyone can participate as a lender or borrower. Why should banks own all of the personal loans?

I hope someone gets it right- ideally credit markets would be accessible by many different brokers like the stock markets, and there would be regulations to insure your money is recoverable if the broker goes bankrupt. I would love to see Vanguard offer peer to peer lending with a 0.10% fee… but that may be a long while. I would also like to see peer to peer lending use collateral as it should lower default rates.

-Rick

I did not compare the yields–reason being that until we have a larger data set for examining default risk, I’m not sure comparing yields offers much value.

Yes, there is prepayment risk with LC notes, but there is with junk bonds as well. After a few more years, we’ll have better data on whether LC notes have a higher or lower prepayment risk.

These two points help highlight my basic view of LC at this time: Wait. If it’s still around in a few years, there will be more data, and perhaps it will be a profitable company. Until then, using anything more than play money seems a poor decision to me.

“I don’t suppose TLC’s affiliate scheme has hurt its currency as a topic of choice on the financial blogs!”

No joke. Now, to be clear, I make money with affiliate programs as well, and I have nothing against them in general.

But I think the manner in which most Lending Club “review” posts are written is, frankly, irresponsible. From what I’ve seen, most of the review posts are written by people who have:

1. only recently opened an account,
2. not read the prospectus, and
3. not bothered to look into any data beyond that which Lending Club prominently features on its site.