I wrote previously about my experience investing with Lending Club. Since writing that post, I have received a few very thoughtful emails with people asking me what the potential downside of investing with Lending Club would be. We all have literally hundreds of options for where to put our money to earn a return, so I thought it would make sense to address some of the pros and cons of using Lending Club as an investor and let you determine if Lending Club is right for you.
What are the pros of investing with Lending Club?
There are many benefits to investing through Lending Club. For me, it has been a very easy to use platform that gives me access to higher returns than many other investing activities. The main pros that I see with Lending Club include the following:
- Automated investing – you can set it and forget it if you please
- Returns of 5% to 15+% depending on the risk level you choose
- Very low minimum investment so nearly anyone can invest using Lending Club
- Simple, easy to use and understand platform that you can log into at any time and see your financial standing in real-time
- Ability to diversify your portfolio across different risk and return levels
- Options are available for 401k and retirement rollover accounts, so you may have access to more investment capital than you might initially think
- Monthly Cash Flow – you can choose to reinvest the payments that you receive, or take your monthly cash flow and use it as you please
- Ability to set up automatic deposits into your account, so you can save and earn money without even thinking about it
What are the risks of investing using Lending Club?
As with any investment, there are some risks and drawbacks associated with Lending Club. It does certainly offer great returns with flexible levels of risk and effort, but there are still a few things to be aware of when considering investing with Lending Club.
- Ability to withdraw money – since you are providing a loan, the money that you put into Lending Club will not be like some other investments, where you have the ability to withdraw at any time. When you buy into a note, you are loaning someone that money and will only get it back in the form of monthly payments. If you wish to withdraw your monthly payments, you will need to wait, or sell the note on the Note Trading Platform, where you will most likely be sacrificing some of your return.
- Risk of borrowers defaulting on loans without easy method of recouping funds in default
- When money is tied up in a loan, it is harder to get out than other types of investment like a savings account or stock investment, although you can sell your notes through an exchange provided by Lending Club
- There are still certain states where Lending Club cannot be used, although this list is narrowed down to only two at the time of publishing this post.
Overall, I believe that the pros outweigh the cons for my personal investing goals. I choose to use Lending Club fairly sparingly and automatically deposit a small amount from my checking account each month into Lending Club. I have automated all of my investing through Lending Club, so I rarely look at the platform and over about one year, I have had returns of just under 12%. Questions? Comments? Experiences to share? Feel free to leave them in the comments.