Investing Simple is affiliated with LendingClub. This relationship does not influence our opinion of these platforms.
LendingClub is one of the most popular peer to peer lending platforms available to investors today. On the platform, users can invest in a variety of notes ranked by different grades representing the investment’s risk. LendingClub was founded in 2006 and has had a relatively short track record compared to other traditional investments. In this article, we are going to talk about the variety of different returns investors have earned on LendingClub. If you are new to LendingClub, read our full review here.
LendingClub offers a variety of charts on their website displaying historical returns over specific time periods. The LendingClub site shows that investors have earned a 12.9% average annualized return over the 3rd quarter of 2018. This is an average return across a variety of note grades and maturities.
It is strongly recommended by LendingClub to diversify your note portfolio. By investing in a variety of different maturities and note grades, you may lower the overall risk in your portfolio. Your note allocation may have a direct impact on your expected and realized returns. Below you can see how returns have varied over time across different types of notes.
As you can see in the chart above, LendingClub ranks their notes in risk from A to G with A grades being the safest and G grades holding the most risk. Similar to most traditional investments, the higher the risk the higher the potential return or loss. You can see in the chart that F and G grade notes had an average interest rate of 25%. However, after accounting for the amount of loan defaults and fees, investors earned an annualized return of 2.84% if they invested in F and G grade loans over the 3rd quarter of 2018.
Below you can see a breakdown of the LendingClub return calculation after fees and charge offs that are required when individuals default on their loans. Here is a hypothetical scenario…
You can have multiple investment strategies in LendingClub to aim for your own ideal return. For example, your strategy may be to invest in notes that are graded between A and D and are strictly business loans. Or you may want to place even bets across grades A to G for borrowers that have verified their income. There are a variety of different strategies you can use to mitigate your investment risk while maintaining a worthy return on LendingClub. Some investors may be willing to take on higher risk in order to earn a higher potential return, some investors may want to take a more conservative approach and invest in the highest grade notes only. Just like any other investment you must understand the risks involved, and there are no guarantees for positive returns.
LendingClub also offers automated investing on its platform where they will choose the portfolio of notes you invest in. You will select the criteria for your risk and investment duration and LendingClub will select notes based on that criteria.
LendingClub is still a growing platform and more and more borrowers are using it’s platform to take out loans. Below you can see the total loan issuance since 2011 and the significant growth over the last 5 years.
Overall, LendingClub offers a dynamic lending and borrowing platform that takes the bank out of the picture. Direct peer to peer lending has allowed a new type of investment platform to emerge as well as providing a new medium for borrowers to take out loans. Investment returns on LendingClub have varied over time based on investment risk, time horizon, credit risk, and a variety of other factors. Just like any other investment, positive returns are not guaranteed.