Lending Club Review: Is It Still Worth It?

For almost a decade personal investors have used Lending Club as a staple to diversify their portfolio as an Alternative Investment. Reviews written between 2010-2015 would always boast about their strong returns. But is it still worth it today? Read my Lending Club Review before making your decision to invest here or not.

Lending Club Review

I opened my account at Lending Club in October 2016. Only a few months after the company fired its CEO, Renaud Laplanche, from questionable lending practices. The stock price back then was trading just under $6 a share (down over 50% from a year prior).

Why (you ask) did I decide to open my account then? Well, I figured uncovering a scandal would require the board of a publicly traded company to take immediate actions as a positive sign that there would be stricter guidelines towards the loans issued to investors.

But, I was wrong. This blog post is 12 months in the making. But before we fast forward to today, let’s dissect the investment.

The Strategy

I followed Lending Club’s recommendation to start with at least 100 notes. And I used their Automated Investing tool.  The breakdown was as follows:

  • $25 notes
  • 3 year notes
  • more weighted in B/C grade return and risk

Lending Club Automated Investing Strategy

The Expectation

When starting, my Lending Club investing strategy estimated a projected return to yield 5.98%. I was willing to give up higher returns for notes that carried less risk given that I was new to this investment vehicle.

Lending Club Risk and Projected Returns Automated Investing

In my research, I decided to benchmark against CD Rates and High-yield bonds ETFs. CD Rates back in 2016 were under 1% and even today a 3 year CD will only yield under 2% on average.

historical cd rates

High-yield bonds are typically lower-quality bonds, meaning they carry more risk with a potential higher upside in yields. These bonds are considered speculative for taxable bonds and invest mainly in U.S. high-income debt securities with potentially no given rating.

I decided to benchmark Lending Club’s performance against iShares High Yield ETF (Ticker GHYG). Historically iShares were yielding a little over 4.5% and their last 3 years were just under 2%.

Lending Club vs Bond (GHYG)

The Result

Let’s fast forward to today. As of October 2017, my expected returns is only 3.06%. Out of a total of 154 loans issued, 12 loans are 30+ days late or have defaulted and 6 more are at risk of being late. Also, within that time, Lending Club  lowered my expected returns to now range between 3.79% – 7.82%.

Lending Club Historical Return

During that same time frame, a CD would have locked me in for higher security at a lower yield of 1% but a High Yield ETF would have yielded me a range between 5% – 10% with the option of having higher liquidity.

So, Is Lending Club Still a Good Investment? 

In my opinion, not for me. The risk is too high and the reward too small. It’s only been a year and almost 10% of my loans have already defaulted or are trending to default. Because of this, I have decided to withdraw all cash as notes mature.

I do acknowledge others have had a lot of success with Lending Club over the decade and my situation could be unique. I am not saying not to invest with them but wanted to share my experience to help you make your own decision. Depending on your strategy, this may be a better option for you than maybe CDs or other notes. But is Lending Club worth the higher risk for an additional 1-3% gain?  Not for me personally, there are better investments out there at a comfortable risk level and higher returns.

If you would like to stay in the Peer-to-Peer space, read my review about Real Estate Peer-to-Peer lending (coming soon).


Comment and Share your thoughts and experiences with Lending Club below!

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