Getting My Feet Wet: Investing With Lending Club

Disclaimer: This is NOT a sponsored post!

I’ve written on a couple of occasions about my desire to get started with investing some of my extra monthly cash, now that I have most of my debt paid off and a small emergency fund in place. On the advice of one of my fellow personal finance bloggers, I decided to pick a few stocks and mutual funds and track them over the next few months to see if I picked well before I invest any actual money. But in the meantime I’ve decided to do a little experiment on my blog by investing some money in a non-traditional vehicle: peer-to-peer lending. Specifically, I’m going to invest with Lending Club.

Who is Lending Club?

Lending Club is an online financial community that brings together creditworthy borrowers and savvy investors so that both can benefit financially. Lending Club replaces the high cost and complexity of traditional bank lending with a faster, smarter way to borrow and invest.

How Does Lending Club Work?

Instead of paying high interest rates on a credit card or bank loan, borrowers get their loansthrough ordinary people who want to invest in their success (like me!). So, borrowers benefit because they get competitive interest rates on personal loans and investors benefit because they are putting their money into an investment with a good track record of steady returns (5.8% – 11.51% on average).

How Risky is This Investment?

All investments carry risks. While Lending Club only issues loans to people with a solid financial track record (borrowers must have a FICO score of at least 660 and a debt-to-income ratio below 35%) a borrower could default and the investor could be out some money. To better match borrowers with investors based on the level of risk the investor is willing to take on, Lending Club has grouped borrowers’ loans into 7 categories (A-G), with A being the least risky and G being the most risky. As with all investments, the greater the risk, the greater the potential reward.

 So How Will Do I Plan To Invest With Lending Club?

On November 1st, I’m going to invest $100 in four notes ($25 per note, which is the minimum initial investment amount that Lending Club requires). In the interest of diversification, I’m going to invest in an A note, a C note, a D note, and a G note. I want to be able to compare how riskier and safer notes perform, and also not sink too much money into a risky investment right off the bat. On the first of every month, I’ll post an update about how my investments are doing.

In The Interest of Full Disclosure…

I am a member of the Lending Club affiliate program, however, the money that I am investing is my own. I have always had a policy of not promoting any product or service on my blog that I don’t truly believe in, and I truly believe in Lending Club (and the concept of peer-to-peer lending in general). I think that Lending Club offers a really exceptional service to both borrowers and investors and would invest with them even if I wasn’t an affiliate.

So there you have it! I’ll do a brief post on November 1st about my experience opening the investment account and then a monthly update from there.

What are your thoughts on peer-to-peer lending? Have you borrowed or invested with Lending Club? If so, please share your experience!