# What about lending club?



## willow1044 (Jan 30, 2012)

Lending Club is an American Peer-to-Peer or community based lending website. They arrange loans between lenders and borrowers and cutout the banks and CC companies.

Being American based means that Canadians have to clear a higher hurdle to participate; specifically I'd have to have at least $100K in my account.

Needless to say, I'm anxious about giving anyone that isn't a registered bank that much money. 

Can anyone suggest anything I should be aware of before making the plunge?

Thanks,


----------



## andrewf (Mar 1, 2010)

I thought the US P2P lenders did not accept Canadian lenders. I know that the Canadian equivalents (if they are still around) require lenders to be accredited investors.


----------



## Echo (Apr 1, 2011)

I don't think Lending Club accepts Canadian investors. According to their FAQ, only the residents 27 of 50 states are eligible to invest - http://www.lendingclub.com/kb/index.php?View=entry&EntryID=113


----------



## willow1044 (Jan 30, 2012)

I called them directly and they said that under certain conditions CDN investors can participate.

My big concern is what do I need to do to ensure I do due diligence on them? $100K is a lot of money to turn over.


----------



## the-royal-mail (Dec 11, 2009)

Unless I'm misreading, the OP sure seems determined to do this and to risk $100K? That is an enormous amount of money to risk and I don't see the point. What's in it for you to send them all that hard earned money? What guarantees are there? And why should you jump through hurdles? Anyone can set up a website to collect money. 

This sounds like a big scam to prey on the unsuspecting. I simply don't have the time to delve into something that offers no substantial value.


----------



## MRT (Apr 8, 2013)

a quick search online yields that Google, among others, recently invested 125 million into the company (that is now valued at over 1.5 billion).

still think it sounds like a scam?


----------



## andrewf (Mar 1, 2010)

I wouldn't do it except perhaps if I had $2 - $3 million in investable assets. I think the risk is a bit too high to justify allocating more than 5%.

TRM, it's not a scam. Returns are similar to HY bonds, and you are essentially creating your portfolio of securitized loans, loaning that $100k to several hundred borrowers.


----------



## donald (Apr 18, 2011)

Wouldn't that be a insane amount of work?(that alone would be a disadvantage)If these are typically small loans like between 2500/5k.So you would have lets say 30 loans out (100k)and lets say 5 repayment pay structure to close the loan(that is a lot happening)and then you got to monitor who has been late and worse those who default(i don't know how it works so i might be out to lunch)What do you do if a third of your portfolio is missing payments?This seems like a con's dream.
I personally would never loan any money to someone i have ever meet(these are people that can't get a loan from a bank/cc/family/friends ect)that alone would be enough for me to not want to partake.
You the lender has to ''jump'' through hoop's,Shouldn't it be the borrower that should be doing the hoop jumping(what do they do)
Has anybody ever read or heard about anyone making a fortune doing this(p2p)my guess is i doubt it.
I would rather buy 5 canadian blue chip dividend companies with a 100k...........what does a ''securitized'' p2p loan even mean?


----------



## lonewolf (Jun 12, 2012)

I was reading a lending club none dated review that stated the default rate on thier site is not really accurate.

The loans are growing fast if in the prior year there were half the number of loans as in the next year & they state a 3% default rate the actual default rate is most likely be a lot higher because it is based on the total number of loans.

A credit union is kinda like Peer-to-Peer lending & is most likely run more with a lot more disapline & based on a method that is a lot more solid then most investors could achieve.


----------



## willow1044 (Jan 30, 2012)

The rates of return posted on their website are NET of fees and defaults. For those uber analytical types here's how they calculate the numbers:


*How We Measure Net Annualized Return *
Net Annualized Return is based on funds actually received each month, net of our service charge of 1%. We make deductions to account for any defaulting loans. We refer to these deductions as "default status" amounts. As explained below, default status amounts are equal to the outstanding principal amount of any Note for which the corresponding member loan is 120 days or more delinquent.
Why We Display Net Annualized Return

Net Annualized Return reflects only actual funds received to date. There is no forward-looking projection of performance. Therefore, we believe it gives you a more accurate measure of the performance of your total investment versus considering only the stated interest rate on the Notes you have purchased.

*How We Calculate Net Annualized Return*

Net Annualized Return is the output of a formula where the numerator is composed of interest received, plus late fees received, minus the 1% service charge paid. If a Note does not get paid, the interest received that period will be zero. If a Note is in "default" status, we subtract the entire principal amount of the Note from the numerator. Next, we divide this result by the outstanding principal amount of the Note for that period. This yields a fraction for the period.

This calculation is performed for each period, taking into account all interest received, late fees received, service charges paid, and all defaults relative to the principal outstanding in each period. Doing so means we account for performance on investments that begin in different periods, have different payment dates, and so forth. The final step in the calculation involves annualizing the result. We take the sum of (1 + the dollar-weighted average performance for all periods), raise it to the 12th power, and subtract 1. This result is the Net Annualized Return, which is expressed as a percentage.

To be included in the Net Annualized Return calculation, a Note must have been issued more than three (3) months prior to the calculation date.

*Example of a Net Annualized Return Calculation*
The calculation for a group of Notes can be illustrated as follows. Assume, for example, that an investor purchases 50 Notes, each with an original principal amount of $200 and each bearing interest at 8.00%. Assume that all of the member loans corresponding to the 50 Notes fully perform for 12 months. The Net Annualized Return at the end of 12 months would be 7.83%.

Now assume, for example, that an investor purchases 50 Notes, each for a principal amount of $200 and each bearing interest at 8.00%. In this example, assume that 45 of the member loans corresponding to the 50 Notes fully perform for 12 months. Assume that five member loans fully perform for the first two months they are outstanding, but in the third month, cease performing and enter default status in the seventh month. Because these five member loans have entered default status, we subtract the principal amounts of the five corresponding Notes in the monthly calculation for the seventh month. The result is a negative number, and the Net Annualized Return at end of 12 months would be -4.19%.

*The Limitations of Net Annualized Return *
Net Annualized Return is just one way you can calculate the return on funds you have invested through the Lending Club platform. We think it is the most useful and accurate way to measure investment performance because it takes into account both our service charge and delinquent corresponding member loans. However, there are other methods for evaluating the historical or potential investment return on fixed-income securities that you could choose to use instead, and you may want to consider such methods as well.

Net Annualized Return can be expressed as this formula, for any period from month 1 to month N, where i is the recurring monthly period:

Net Annualized Return measures the performance of our investors; it does not reflect the performance of loans held by Lending Club as an investment. Lending Club Notes are only offered by Prospectus.

For prospective borrowers, you can apply for a personal loan to get an instant rate quote.

For prospective investors, you can open an investment account instantly to get started building a portfolio that can earn more than other investments with comparable risk.


----------



## james4beach (Nov 15, 2012)

donald said:


> Has anybody ever read or heard about anyone making a fortune doing this(p2p)my guess is i doubt it.


That's why Google & others are buying SHARES in the company, not actually participating in the lending. The company's shareholders will benefit from the fees and lending spreads, plus they can cash out on the hype of another "internet IPO", especially one with a social networking slant.

Can you make money by lending out money through the site? Maybe, but it's going to be difficult and you will occasionally see defaults and loan losses. If there's a sharp economic downturn or something shakes up the consumer space (e.g. change in government payments, cut in food stamps, or even rising taxes) I bet you'll start seeing defaults all over the place. The kinds of people who will be using Lending Club for loans are living marginally, paycheck to paycheck, with little or no assets.

That's why they're coming to the site for *unsecured* loans. You could still make money lending through the site, but you'd better be willing to spend tons of time doing background research, and running analytical models to forecast things like loan losses.


----------



## james4beach (Nov 15, 2012)

Here's another observation. When I search around for Lending Club reviews, many of the resulting web pages turn out to include a referral link to Lending Club (which earns them money).

This means that many of the people pitching Lending Club have a conflict of interest; they will benefit directly by making Lending Club sound good and attracting new people to it. Can you really find impartial information on people's actual experiences, their actual rates of return over time, loan losses, amount of time & effort they are spending screening borrowers?

I've read various reviews of this now (almost all of them having the salesman-like problem above) and it's pretty hard to find someone describe their annualized rate of return over a long enough time (2+ yrs). This is all that matters in the end... what ANNUAL rate of return are you achieving? As other discussions on this board have illustrated, it can actually be pretty hard to calculate this important metric. As a result, I'm pretty sure most participants don't even know their rate of return.

I've seen numbers from Zopa users (very similar thing in the UK) saying 5% to 6% annualized return after fees & losses. And a couple Lending Club experiences that look like 3% to 6%. Same ballpark. Again we're talking about prolonged use here, because that's what you care about if you're serious about investing with this.

If annualized returns are truly only 6% at best, that really is pretty crappy. Compared to junk bond ETFs, which give you a similar thrill of lending to unworthy borrowers, the web sites like LC require much more manual work and monitoring (time = $$), less liquidity, and the added financial uncertainty of the middle man who himself could implode and lose your money -- the float you're providing -- disappear in their own bankruptcy. That's added risk on top of the personal loan.

I don't see why you should bother with Lending Club.


----------



## Nemo2 (Mar 1, 2012)

Wouldn't touch it with either a ten foot Pole or an eight foot Hungarian.


----------

