LendingClub unlocks the potential for higher fixed-income returns with a peer-to-peer lending platform where investors purchase fractions of personal loans. But you can only invest if you have an annual income of at least $70,000 or a net worth above $250,000.
Peter Carleton is a writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading.
The LendingClub Notes platform to shut down
LendingClub announced in October 2020 that it’s shutting down its Notes platform at the end of the year. It’s also closed down its loan trading platform. The move is part of LendingClub’s shift to become a fintech bank. Current investors received an email from LendingClub detailing the plan and how it affects their investments. If you were considering investing, you’ll need to compare other options.
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How does LendingClub work?
LendingClub is a peer-to-peer investment platform that connects personal loan borrowers with investors. Through LendingClub, investors can gain access to consumer credit investment opportunities by purchasing slices of personal loans.
LendingClub splits loans up into notes, which are sold to investors under three- or five-year terms. Each note is given a risk grade from A-C and notes can be purchased for as little as $25.
Investors receive monthly returns that include both interest and principal payments. LendingClub takes a 1% cut of monthly returns as a fee.
Who is LendingClub best for?
Better suited for more experienced investors, LendingClub has steep eligibility requirements. In exchange, however, it could provide higher returns than traditional fixed-income investments:
Passive investors. Unlike stocks and other securities, LendingClub doesn’t require active involvement. Once you invest, you’ll receive monthly payments that include both interest and principal.
Long-term investors. LendingClub allows investors to open individual, joint, retirement and many other types of accounts.
Corporations and businesses. Businesses and corporations may be more capable of meeting the eligibility requirements, allowing them to turn unused capital into residual income.
What are the benefits of LendingClub?
LendingClub offers a handful of perks that make it stand out:
Diversification. Instead of investing in a single personal loan, diversify your money by investing in fractions of multiple loans.
Versatility. Handpick your investments when you open an individual, joint, retirement, trust or other type of account
Low fees. Lenders are charged a 1% fee on each monthly payout, and nothing else.
Passive income. You’ll get monthly payments that include principal plus interest as borrowers repay their loans.
Potential for high returns. LendingClub advertises that you can earn between 3% and 8% on your investment.
Automated investing. If you don’t have the time to build your own portfolio, LendingClub can automatically invest your money.
What to watch out for
Despite being a platform with low fees, here’s what to watch out for if you choose to invest with LendingClub:
Minimum deposit requirements. You’ll need to deposit at least $1,000 to invest with a regular account or $5,500 for a retirement account. After that, each note costs $25.
Risk. As with any other loan, there’s always a risk of the borrower defaulting and the lender not getting paid. And LendingClub is not covered by FDIC or SIPC insurance.
No guaranteed returns. Peer-to-peer lending isn’t a traditional type of investment. While LendingClub investments have historical returns between 3% and 8%, there’s no guarantee that your investment will perform the same.
Steep requirements. To become a lender, you’re required to make at least $70,000 per year and can’t lend more than 10% of your net worth.
Long term investment. Your money is tied up in loans for 36 or 60 months.
Gains taxed as ordinary income. Unlike interest and capital gains, your earnings from LendingClub are taxed as ordinary income.
LendingClub reviews and complaints
LendingClub holds an official accreditation on the BBB website along with an A rating and a 3.4- out of 5-star customer review score, as of October 2020. However, there are many complaints about billing issues, denied loans and a lack of communication. Keep in mind that people with negative experiences are more likely to leave reviews than those with positive ones.
How do I get started?
Signing up for LendingClub can be done online and only takes a few minutes:
Visit the LendingClub website, hover over Invest, click Individuals.
Click Start Investing.
Choose your account type, enter your email, create a password, then click Next.
Enter your personal information to verify your identity, then click Next.
Fund your account via ACH transfer, wire transfer or mail a check.
Choose an investment strategy to complete your account setup.
To open a joint, trust, corporate, custodial or any other type of account, contact Investor Services by phone or email.
To invest with LendingClub, you’ll need to meet a few eligibility requirements:
At least 18 years old
Have an annual gross income and net worth of at least $70,000 or a net worth of at least $250,000
Residents of California must have an income and net worth of $85,000 or a net worth of at least $200,000
Reside in any state other than New Mexico, North Carolina and Pennsylvania
Have a valid Social Security number
Make an initial deposit of at least $1,000
During your application, you’ll be asked for the following information:
First and last name
Date of birth
Address, phone number and email
Social Security number
Based on current regulations, Alaska, New Mexico, North Carolina, Pennsylvania, and Ohio limit investment activity in LendingClub Notes for their residents.
Alaska, New Mexico, North Carolina, Pennsylvania: Residents are unable to purchase LendingClub Notes on the primary market. However, they are permitted to buy and sell LendingClub Notes on the Folio Investing Note Trading Platform.
Ohio: LendingClub Notes are currently unavailable for residents to purchase or trade.
LendingClub is currently working to expand LendingClub primary market investment access to residents of Alaska, New Mexico, North Carolina, Pennsylvania, and Ohio.
How do I contact LendingClub customer service?
Contact a customer service representative by:
Phone: 888-596-3157 Monday to Friday 5 a.m. to 5 p.m. PT, and Saturday 8 a.m. to 5 p.m. PT
Email: Visit the Contact Us page to fill out the contact form
I’ve made my first investment with LendingClub. Now what?
Once you’ve opened and funded your account, take advantage of everything LendingClub has to offer, by:
Setting up your portfolio. Choose loan grades and ranks that correspond to your investment strategy. Better interest rates come with low-grade loans, but there’s a higher risk of the borrower defaulting.
Maintaining your investments. To get the best returns, stay on top of your investments. This means configuring your portfolio or potentially buying and selling notes on the secondary market through Folio.
Considering an IRA. Since standard investment earnings are taxed as regular income, consider opening an IRA account to make tax-deductible contributions.
Understanding tax implications. Read up on your state’s tax guidelines and visit an accountant or financial advisor.
Downloading the mobile app. Make it easier to keep up with your investments.
LendingClub is an alternative way to invest. And with returns that fall between 3% and 8%, you could earn more than you’d make from traditional fixed income investments like bonds or CDs.
However, it has steep income and net worth requirements and you’ll need to invest at least $1,000 to get started. Compare your options if you want to explore other investment strategies.
Frequently asked questions
You can transfer money into your account via ACH transfer, wire transfer or by mailing a check.
LendingClub makes an effort to contact the borrower to collect the payment and sends the loan to collections if necessary. Delinquencies are an expected risk of lending money, which is why diversification can help lower your exposure and reduce the volatility of your portfolio’s returns.
Yes. To do this, fill out an IRA transfer form and submit it to LendingClub.
Any available cash can be withdrawn by navigating to the Transfer page of your account, then clicking Withdraw funds. You can also request a check by contacting Investor Services, but a $15 fee is deducted from your total withdrawal amount.
Contact member support or investor services and ask to cancel your account.
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