Lending Club is a peer-to-peer platform that lets investors invest in other people’s debt. Simply put, this platform lets you rent out your money to other people to use. In turn, borrowers receive loans at a better rate, whereas the investors enjoy higher returns. Unlike in the olden days where lending someone money was a pretty big risk unless provided collateral, Lending Club lets you spread out and minimize your risk by lending money to multiple borrowers across the Platform.

It also offers the possibility of higher returns compared to traditional fixed-income investments. That said, it is important to note that investing with Lending Club is a long-term commitment and is not without risk of borrower default.

How does Lending Club work? The Lending Club offers loans to borrowers across the United States. It uses state of the art technology to evaluate risks, find out credit ratings and charge appropriate interest rates to borrowers. For investors, you start by selecting the notes you want to invest in to earn monthly revenue. Investors can invest a minimum of $25 per note which allows them to spread out and minimize the risk. You are also given a chance to assess each loan to ascertain which ones you want to invest in.

Loans graded as “A” have the least risk of nonpayment on the platform based on various factors such as the borrower’s creditworthiness. These attract the lowest rates. As you move further down the grades B, C up to G, the loans get riskier. However, the riskier a loan, the higher the rate it fetches.

Loans graded as “A” have the least risk of nonpayment on the platform based on various factors such as the borrower’s creditworthiness. These attract the lowest rates. As you move further down the grades B, C up to G, the loans get riskier. However, the riskier a loan, the higher the rate it fetches.

Who is Lending Club For? This club is highly recommended for;

•IRA investors

•Hands-off and hands-on investors

•Risk Takers

•Diversification

Features of the Lending Club

Minimum Investment for Taxable Accounts Lending Club allows a minimum investment of no less than $1,000.

Investment Length Lending Club’s investment length range anywhere from 36 to 60 months.

Interest Rate Lending Club offers a fixed rate for the term on the loan.

Lending Club App Lending Club investors can access their accounts through iOS and Android mobile apps.

The minimum investment for IRAs Lending Club requires investors to deposit a minimum of $5,500 to open an IRA.

Types Account The Lending Club offers investors a range of accounts to choose from, including Individual, Joint, Trust, Corporate, Custodial, Traditional IRA, Simple IRA, Roth IRA, and Rollover IRA.

Lending Club Borrowing Process All Lending Club loans must be applied online. To qualify for this loan, an investor must have a FICO score that is above 660. Note that not all loan applicants get approved, which is part of the company’s risk management strategy.

Individual borrowers can apply for a loan amount of from $1,000 to a maximum of $40,000. The interest for these loans is determined by the Lending Club, based on your credit rating. However, their rates are rather competitive compared to traditional banks, starting as low as 6.16% APR and a high of 35.89% APR. The best APRs are available to borrowers with excellent credit scores. The lending club also offers loans for refinancing autos, medical expenses, and small businesses.

What are the Note Terms? The loans are available in three and five-year terms. All their loans are unsecured and no different than credit card loans. Any defaults on payment are reported to these three credit rating agencies; TransUnion, Experian, and Equifax.

How Lending Club Works First, you need to sign up as an investor, which takes a few minutes to complete. You can fund your account either via mailing a check or electronic transfer directly from your bank. The lending club requires you to invest at least $25 per note.

Minimal Requirements for Investing with the Lending Club Lending Club is not available to all investors. As needed by the SEC and each state, the platform has set up minimum net worth and income requirements that one should meet to join the club.

Income level To become a member of the Lending Club in most states, you are required to have a gross annual income of at least $70,000 and a net worth of at least $70,000. In California, the rates are a little different with investors required to have a gross annual income of at least $85,000 and a net worth of $85,000.

Approved States Lending Club is available to investors in most states except Pennsylvania, Ohio, Alaska, North Carolina, and New Mexico.

Net Worth If your net worth is over $250,000 ($200,000 in California), there is no annual income requirement. In the state of Kentucky, an investor must qualify as an “accredited investor” under the Securities Act of 1933.

Lending Club Investing Risks Just like any other investment, there is always a risk. Here are some possible risks when investing with Lending Club.

Default Risk Lending Club loans are not insured by the FDIC. They are also not equivalent to bank CDs or Treasury Notes.

Inflation Risk Due to their fixed rates, you have a higher risk of inflation eating into your returns. However, due to their high return rate, this risk is unlikely to affect you.

Management Risk Although Lending Club’s annual rate is and has been 1% for the longest time, it could increase in the future.

Marketplace Risk This is the risk that Lending Club could go bankrupt. Although it is unlikely, taking into consideration the Lending Club’s history, it is not impossible.

Callable Risk If a loan is paid early and in full, your returns will be affected and you may need to find another loan to replace it.

Diversification Risk Even if you have a small loan amount of less than $100, a single default can dramatically affect your overall return.

Liquidity Risk Although loans can be sold on the secondary market, it will take some time to unwind each note.

Economy Risk A recession is highly likely to increase the overall defaults of the individuals within the Lending Club, causing your return to decrease.

Pricing Risk The Lending Club assesses the borrower’s risk to default and prices the loan accordingly. However, you can minimize this risk by picking loans that you can fund. If the terms are not ideal, do not invest in that note and pick a different one.

Lending Club Taxes Lending Club’s taxable account is inefficient, especially for high-income earners majorly due to the government’s income requirements. In the US, Lending Club investments are not considered as passive investments. Therefore the IRS taxes any returns as ordinary income.

In this case, you are better off choosing the self-directed IRA accounts as they are much more tax efficient.

Lending Club Investing Strategy These are some of the commonly used strategies used for investing with Lending Club that has borne favorable returns. Just make sure to use them as you see fit and do your research before applying them into your trade.

Interest Rate The A, B and C notes have some of the best rates. Just make sure you do not invest in A notes with rates lower than 7.5%.

Length of Employment The longer the employment when investing with the Lending Club, the better the returns. Always choose a length of employment that is greater than 1 year.

Debt Refinance Opt for people looking to pay off higher interest rates as opposed to riskier types of loans like a start-up business.

Loan Term We highly recommend a 3-year loan term. The additional 2% plus or minus return for 5-year notes is in our opinion not worth the additional risk.

Loan Purpose In this case, we tend to look at borrowers looking to get better rates and reduce their debt. When choosing clients whose loan’s purpose is to refinance Consolidate Debt, Credit Card debt and Home Improvement Projects consider the following:

Loan Purpose In this case, we tend to look at borrowers looking to get better rates and reduce their debt. When choosing clients whose loan’s purpose is to refinance Consolidate Debt, Credit Card debt and Home Improvement Projects consider the following:

•ElDelinquencies: None within the last 2 years

•EIMaximum debt to income ration: 30%

•EICredit Score: A FICO score of 675 or more

•EIReview Status: Consider customers who have been reviewed by the Lending Club. This gives a better chance that the loan details are legit.

• Although these filters provide a good basis for choosing a client, it is crucial that you always look at the bigger picture, which in this case is will the client pay back the loan?” If you have any doubt in an applicant, skip and move on to find a better note.

If you don’t find a good note, wait for a few days and check again. There is no need in rushing the process as you don’t want to get stuck with a bad note. Remember, once you purchase a note, unloading it is not easy. And, although you have a secondary market, ideally, the goal is to hold the note until maturity.

To achieve this, start by building up a portfolio of at least 200 notes. The more notes you have, the more your portfolio will be. They also help stretch out the risk to many loans should one default. Also, when building your notes. consider manually investina as opposed to automated investment options as this aives you more

Secondary Market This Market, also known as FOLIOfn, is for investors looking to unload a loan. This market can prove useful if you have a poorly performing loan, or are in need of cash for other investments. It is also a great place to pick up notes from other investors.

Pros

•No prepayment penalty

•11Potentially higher returns

•No hidden fees

•Many filtering options

•Automated investing

• Improved secondary market

Cons

•ElLong-term investment

•Returns are not fixed

•Not everyone can invest

•11% annual fee

•❑Gains are taxed as ordinary income

•❑Revised lower returns

•❑Unsecured loans

•❑Manual investing requires a lot of maintenance

The bottom line, we highly recommend investing with Lending Club as it gives you a chance to earn more revenue compared to other other investments that hold comparable risk. You will also be earning consistent profits that are not subject to the fluctuating stock market. However, you need to understand that it is a risky venture and requires frequent diligence to invest wisely.

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