Any Lending Club users on HROT?

[lucas80]

I picked up an old copy of Time today at the gym and read a story that featured the Lending Club. It seems like a unique way to invest money for decent cash returns, and some diversification. If you've never heard of it, you invest online in set amounts that can be distributed to borrowers on the site. They have to pass a fairly rigorous credit check, but, there is risk. It's usually individuals looking for a mid level or small amount of money that don't want to wait on a bank, or can't get a loan due to today's tight lending practices. I think the article said the average FICO score of the borrowers are 670-690. They usually have good work records with a yearly income of around $70,000.
Have any of you utilized Lending Club to invest money, or to borrow money?

 

[lucas80]

I'll bump this once and see if any of the HROT financial wizards have thoughts. I've attached a link to a critique of Lending Club.
http://wealthpilgrim.com/lending-club-reviews/

 

[lucas80]

I'll give you the link to Lending Club itself. It does seem there are potential rewards if you trust yourself to pick decent loan candidates and actively manage your account.
https://www.lendingclub.com/

 

[hooper56]

Heard about this a few years ago and I think it makes a lot of sense. One of the financial gurus on TV was talking about it in a positive way. Returns are certainly much better than you will get from a bank cd etc, although there is definitely some risk involved. Also it is not real liquid.

 

[lucas80]

As part of a well rounded portfolio something like this makes sense. I'm not in a asset preservation stage right now. CD's and individual bonds are returning nothing right now. A lot of the information suggests a 9 percent return, maybe a little higher, I'd take a 7 percent return for a section of my investments.
True that it isn't very liquid, Hooper. What kind of liquidity do you seek balanced against growth potential. In my opinion the less liquid the more likely you see a return. Most things with high liquidity are lower return investment vehicles.

 

[hooper56]

If you don't need the money for 3-5 years this investment is fine. The return might be 9% but there absolutely will be some defaults probably between 1 and 2% where you will lose the interest AND the initial investment. My read is that you would net an average closer to 5%, (but you have a chance to do better)

You could go with a bond fund that would offer daily liquidity and give you nearly that same return (5%) with less risk. To me if you are going to go the Lending Club route you should invest in the riskier portfolios which give the chance for quite a bit better return. Split your investment among hundreds of different loans to mitigate the risk.

Also there will be zero return until the loans are actually made meaning your money could be sitting there for awhile earning nothing at all.

I think it might be a good investment but not perfect and not a place to put your entire basket of eggs.

 

[hawkiniowacity]

If done properly you will net 9-12 percent. I know a few people, licensed financial advisors, who use this as a part of their diversification and that's what they return. I'd call BS if I wasn't their OSJ and had to review every holding they have outside our BD.

 

[lucas80]

One of the comments in the linked story mentioned they are adding hundreds of loans per day, and they are cycling out very fast. It seems you won't have the opportunity to sift through the loans for too long. That might signal a need for individual controls to automatically invest in loans that meet your parameters.
You can sell the loan if you identify a risky trend. Many of the people in the linked article talk about selling if they are spooked, or buying and suffering the occasional loss with higher returns because they bought for a fraction of the initial buy in.