Lending Club: How To Participate in P2P Lending

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The people are taking their stand, and one giant middle man is being removed – the bank.

Borrowing and lending has been part of human society for generations.  It was prevalent enough that God included some borrowing and lending guidelines in the books of the Old Testament law.

Historically, the wealthy lent to those in need.  In our modern society, the banks have long since held the monopoly for extending credit.  That is until the emergency of the P2P lending movement.

What is P2P Lending?

P2P stands for People to People lending.  These companies provide a way for those who want to borrow money to connect with those who want to lend money. As a P2P lender, you will have the opportunity to find an individual who you think is a good candidate for a loan.  From there, you simply offer to loan that person anywhere from $25 up to their full loan amount.

The recent Plutus Awards nominated Kiva as the Best Peer-to-Peer or Social Lending Service.  Since I’ve never used Kiva, I feel more comfortable introducing your to Lending Club – a lending service I have used.

Lending Club Review

If you sign up for Lending Club using this link, you get a bonus $25 to start investing

What Are the Lending Club Requirements?

    You can lend as much as you wish through; however, you can only borrow up to $25,000

  • All interest rates are fixed.  Each loan will have an interest rate associated with it.  You, the lender, simply decide if that loan is worth that interest rate (based on the borrower’s credentials).
  • Loan repayments will be monthly for a term of up to 3 years.
  • The debt can be paid off early without any penalties.
  • Your privacy is ensured for both parties.
  • Borrowers need a FICO score of at least 660 and a debt to income ratio (minus your mortgage) that’s below 25%.
  • Not all states can participate with Lending Club, so be sure you can participate based on your residence.

What Risks are Involved?

There are essentially three:

  1. Loan Repayment Default – an individual may borrow money and default on the payments.  Though Lending Club does have a debt collections process, there is no guarantee that you will get all your money repaid if someone defaults on one of your loans.
  2. Lack of Diversification – the less money you invest, the more concentrated your risk will be.  Most people want to start off investing a hundred dollars which means they will invest in four loans.  This means if there is one default, their portfolio might drop by 25%.
  3. Interest Rate Increase – when interest rates increase and you are locked into a loan with a lower interest rate, your loan becomes less valuable.

How to Reduce the Lending Club Investing Risk

  1. Lend only to the most qualified borrowers. Once you sign up you will be able to search for a person to lend money to.  You set all the criteria including credit score and debt to income ratio.  The higher a person scores, the more trustworthy they are – of course the less returns you can also expect.
  2. Diversify. When extending credit, you must loan a minimum of $25 per person.  This way if you had $500 to invest, you could actually spread it over 20 different loans.

Here’s more tips on how to invest at Lending Club.

What are the average returns for Lending Club lenders?

Lending Club reports that their average annualized return is around 9-10%.  This number, of course, is no indication of how you can expect your investments to perform as it completely depends on the risk you assume.

I would not invest any emergency funds as liquidity is not possible.  Remember, you are typically going to be committing the money for a 3 year period.

You could take a portion of money set aside for mid-term lengths (3-5 years) and invest in some Lending Club notes.  This would include money you are saving for a vacation in a few years, money that is for a vehicle purchase in the future, or money that is invested outside a taxable account.  Anything with a three year window or more.

Sign up for Lending Club and get a $25.00 bonus.

By the way, if you sign up as a borrower, you get $100.  But that is another post for another time.

Any readers use Lending Club or another P2P lending company?  Do you have any positive or negative results?


  1. Scott F says

    Never thought about it from an investment point of view. I did try and get a car loan in February from them but the rate they offered was about 80% higher than the rate I got at my credit union. And my scores are above 800 so I know it wasn’t from that. But that may be a great way to invest. I’ll have to think about that one…..

  2. Lara says

    Been investing for almost 2 years now, love it. I’ve had a few defaults (about 6 out of 200+ notes), so it’s not without some heartbreaks, but even after those, I have still made right above 8%, which is not bad at all. Trick is diversification (never lend more than $25 per loan), and reinvest quickly when you get payments.

  3. says

    Yep, I opened up a Lending Club account last year when they offered a bonus. I had my note paid off early, so I reinvested it this year.

    Though it’s only been a short time, I’ve had a positive experience thus far. My stated return is a bit over 6%, which is more than savings accounts and CDs are offering at the moment.

    If they can keep defaults low and keep monitoring the creditworthiness of borrowers, over time I think we may see this as real legitimate alternative to banks.

  4. says

    Hi Craig,

    I’m surfing the personal finance blogosphere and saw this article on lending club.

    I’m not familiar with lending clubs, but if that’s the returns that you’re getting then the rates are close to usurious. If someone has minimum 680 FICO and D/I of 25% or less, they more than qualify for decent rates via banks and credit unions. Some would get even lower interest rates through the finance companies.

    In regarding to Kiva. If you are looking to support, then I would suggest doing some research first. I have some serious doubt about Kiva despite the organization being endorsed by many high profile celebrities. The finance world is littered with celebrities being scammed financially that normal people don’t hear about because it’s too embarassing.


    Here are two articles that go into a little more details about the issues with Kiva. California’s First Lady, Maria Shriver, just recently endorsed and created a program with Kiva but upon researching the details, it didn’t make sense at all to me. For example, over the last year, the newly created org with Kiva lent an average of 164 loans /per borrower to 150 business owners. These are red flags to me.

    • says

      Thanks for the comment.
      As far as the interest rates I think most people would gladly exchange a 18+% credit card balance for a 10% Lending Club loan. If someone can get a better rate then by all means they should. One thing I could have mentioned is that the borrower sets the rate. They say – I’m looking for a loan for X dollars at Y interest rate. Lenders can chose to loan to that individual or not. I guess my point is that no one is getting taken advantage of via Lending Club.

      As for Kiva, I have no personal interaction with the company, but you are exactly right – before you do anything with money always do you homework and research.

      • says

        A Perfect End to My Time at Life Pacific College Posted Thursday, December 11, 2008 by So good to hear from you Janelle! It was good to briefly see you eairelr this year. You are too kind. Thanks for your prayers.Brandon, thanks so much for your note I honestly don’t even remember doing that which humbles me even more. You were an amazing student and I am so proud of the direction your life is taking. Hope to see you soon.

  5. says

    Oh thank you. That’s one less for the must address list based on risks for people that I’ve seen on the internet. I didn’t think about credit cards. The only credit card balances that I advocate are in the 2-5% fixed range.

    Since the only thing I’ve read on the internet before researching for this blog are govt sites, company sites, business research or Yahoo entertainment, it’s been eye opening to see what’s out there. Very frightening.

    • says

      earlier, I can’t do traditional miristny anymore.Sidenote: I took the roots of modern thought class through distance learning and I got a lot of it. There were still a lot of things I didn’t get and would want some understanding on. I make trips to southern california here and there. I would love to sit down and talk to you about those kinds of topic one time.Thanks again for your service to Life Pacific College. You did a great job.

  6. S. Collins says

    For those who have already found a friend or family member who will give them a loan, I suggest using lendingkarma.com. It held my hand through the documentation to create a legal document between me and my neighbor so I could receive a mortgage loan from him. I hope this helps

    God Bless

  7. George Lansaw says

    I am looking for someone to help with financing my business, I have been operating this truck and trailer for 14 mos. my gross income is approximately 288,000.00 for that time.
    The owners have told me they will finance truck(48,500.00) if I have finances for insurance, start up fuel costs, etc.
    This being around 15000.00-18,000.00
    I have a vision for our church family and those who need financial help. but its been a battle.
    Low credit score, divorce because my ex-wife had been seeing another man for several years.

    If any one has any thoughts or ideas please e-mail me.

    Thank You


    wish to request for loan of ksh.200,000. to enable me start a small business of buying sugarcane from farmers and selling to the factory.
    This would help me pay school fee for my children.

  9. bob sr says

    You used all the right words like Christian and help BUT you threw in all of Mammon to boot. The interest rates are usurious- a biblical sin and a sin in any faith and you threw totally way mercy, compassion, help. If you were a true Christian lender then you would listen and come up with a plan the helps. By opinion a money making opportunity!

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