How I Make Money with Lending Club (My Investing Strategy)

This is the post I’ve been referring to for the past couple months, and I’ve finally gotten around to writing it.  If you’ve read my income reports, you know I talk about Lending Club on a monthly basis.  The reason is simple: This is really my only “true” source of passive income online.  I’ve used Lending Club for over 3 years now and am happy to be an affiliate as well.

What is Lending Club?  It’s basically a platform that allows individuals to loan money to other individuals (also known as “peer-to-peer lending”), with Lending Club as the middle man, making sure that your risk is properly identified before you make an investment.  They do everything from running a credit check on the borrower to verifying the borrower’s annual income, to make sure it’s relatively safe for you to loan them the money.

Of course, there is some risk involved, but you’re compensated for that risk by earning a nice interest rate on the loan (investment).  If you read my income reports, you’ll see I currently earn around a 6% annualized rate of return on my investment, and the average rate of all Lending Club investors is around 9%.  There’s a lot more to it, which is why I decided to write this guide and show you my strategy when investing on Lending Club.

Setting up Your Lending Club Account

Before I actually go into the investing strategy I use, I figured I should probably briefly touch upon how you actually set up your Lending Club account in terms of what you should be thinking about.

First of all, it’s free to create an account.  You can sign up here and set up your account with all the required information.  Lending Club is a secure/reputable site, so you can trust them with your sensitive information.

Upon setting up your account, you will want to make some kind of deposit so that you have money to invest.  For people that are unsure of it, I usually recommend making a $25 deposit – that’s the minimum amount you can invest in a loan, and it’ll allow you to get your feet wet.

Walking Through the Investing Process

I’m going to go through the basic investing process here so that you get an idea of how it works and so you can do it yourself.

Determine Your Tolerance for Risk

Before you even start looking at the available loans to invest in, you should first think to yourself, “how much risk am I willing to accept?”  If you feel like you’re a bit more conservative, you may decide to invest in loans that seem very safe, but also don’t pay a high interest rate.

On the flip side, if you’re only using a small % of your investing portfolio for Lending Club, you may decide it’s worth being a bit more aggressive – in which case, you would target loans that offer a higher interest rate.

No matter what your tolerance for risk is, the process will be the same.  Even if you want to be more aggressive, you still want to make smart choices.  After all, the end goal is to not only make money, but to make enough money to compensate for the risk you are taking on.

Browse Available Loans and Consider ALL Available Information

This is the most challenging part of the process, because you’ll have a lot of information and different loans to sort through. Here’s a sample of what it looks like when you are browsing available loans:

The Loan Rating

The first column basically shows you the quality/rating of the loan along with the expected interest that you would earn if you invest in the loan.  The “A” type loans are the highest quality – this means, the borrower probably had his or her income verified, has a great credit score, little to no history of defaulting on loans, low outstanding debt, etc.

The “G” type loans (not pictured in the list above) are the worst.  There’s a lot more risk here, but the interest rate they offer can be 25% or higher.  I typically stay away from these, but that doesn’t mean you should if you’re willing to take on a little bit of risk with a smaller investment.

B through F obviously fall somewhere in between, and you of course should evaluate each loan individually before making a decision.

The Term

The term is the period over which the loan will be repaid to you (loan payments are typically made on a monthly basis).  Most loans are 36 months (3 years) but there are some that are 60 months (5 years).  You’ll notice in the image above that the loans that are 60 months give you an extra bonus.  The loan second from the top shows “+3.52%”.

What this means is, you’re getting an extra 3.52% for allowing the person to borrow over 5 years instead of 3.  Again, this is all tied to risk – the longer the loan will be outstanding, the more uncertainty there is (what if they lose their job in 4 years?), so therefore, there is more risk.

FICO, Amount, and Purpose

These columns are pretty straightforward.  The FICO score is the person’s credit score (to learn more about how the FICO score works, look at this Wikipedia page).

The amount is the total loan amount that the borrower is requesting.  As an investor, you will (most likely) only be investing in a small portion of that loan, starting as small as $25.  Even though your investment will be small, it still important to consider the total amount the person is investing, and the purpose for which they are going to use it.

For example, if I see a loan for $50,000 with a description that says “Credit card debt consolidation“, there are some red flags that go up in my mind.  This person has racked up $50,000 in credit card debt that they have not been able to repay yet, and they are now turning to Lending Club to try and move that debt into something with a lower interest rate. It’s smart on their part, but do you want to invest in someone who racked up $50,000 in credit card debt to begin with?  Doesn’t sound like a financially responsible person to me.

On the other hand, if the person needs the money for a home improvement or something else like that, and their credit score, etc. looks good, I might be more inclined to invest.  As I’ll explain later on, you’ll be able to click on the loan and read more about it beyond the one-line purpose shown on the screen above.

% Funded and Amount / Time Left

Social, peer-to-peer lending is an interesting thing.  Not only are you trying to make an investment decision based on the characteristics of the borrower, but you can also take a look at what other people are doing.

For example, if there is a loan listing that expires in 10 hours and is only 5% funded, there’s probably a good reason for it, and perhaps you should stay away from it.

On the other hand, if there’s a loan that people seem to be quick to invest in and is almost fully funded well in advance of the loan listing’s expiration time, that might be a good loan to look into and see if it’s something you want to invest in.  These aren’t metrics that should necessarily drive your investment decision, but they are additional signals that can help you determine whether or not it might be a good investment.

Looking Deeper into a Loan That Interests You

Once you’ve identified a loan that looks interesting (based on the metrics shown on the summary page), you can dig deeper into it to see more information.  Here’s an example of one that I looked at:

I would rate my interest in this loan as moderate.  There are a few things I don’t like, but given the fact that the interest rate is a whopping 15.80%, I can’t expect it to be perfect.

Let’s analyze the loan by first looking at some things that I like:

  • 15.80% Interest rate – This is what first got me interested in the loan.  Part of the reason it’s so high is because it’s a 5-year loan, not a 3-year loan, but that alone isn’t going to stop me.
  • Verified Income – Lending Club has verified the borrower’s income (which they don’t always do), so that’s a big plus for me.
  • Good employment record – This person has been employed for the past 10+ years and I can even see who the current employer is.
  • No delinquencies – In the past two years, this person hasn’t had any delinquencies (i.e. no issues repaying debt).
  • Credit score is good (not great) – This borrower’s FICO score is 695-700, which is considered fairly good by most standards.  It’s not great, but it’s good enough for me to have some trust in this borrower.
  • Social signals – This shouldn’t be weighed too heavily, but I like to see that the loan is already 67% funded with 10 days to go.  It tells me that many other investors have decided to invest.  And while we don’t know how smart the other investors are, it’s still a somewhat positive signal.
  • Renter – Depending on your perspective, this could be good or bad.  With someone at this income level, I like knowing that this person doesn’t have a mortgage to worry about.

Now, some things I don’t like as much:

  • Purpose of the loan – The total loan ($19,750) is going to be used to pay off existing debt.  This always leads me to ask, “how did the debt become so great to begin with?” This leads us to a further question: “If this person continues to build up additional debt, will they be able to continue paying down our loan for the 5 year duration?”  No one knows for sure, which is a big reason why the interest rate is what it is.
  • Relatively low income compared to loan – Assuming the $3,683 gross monthly income is only around $2,700 or so after taxes (this is only a guesstimate), the monthly loan payment represents almost 18% of this person’s income.  Again, this is okay, but it’s not ideal.

Overall Analysis 

Even though I’ve only listed two negative points compared to 7 positive points, the two negative points are very significant.  This is the type of loan I would invest in a small percentage of the time (maybe 10-20% of the loans I invest in).  It’s okay to take some risks, but you have to keep your entire portfolio in mind and how it relates to your overall risk tolerance.

Determining an Amount to Invest

This is going to be based on your personal preference, but I like to strictly stick to $25 per investment.  This way, I can be sure that my portfolio is diversified.  Inevitably, you will eventually run into a bad loan and the borrower won’t pay it back in full.  When this happens, your risk will be minimized if your loan amount was only $25.

If you have a lot of money to invest, you might consider increasing the loan size to $50 or $75, but that’s not something I’ve done due to my portfolio size (under $5,000 right now).

If you start out by depositing $500, don’t feel like you need to get out there and invest in 20 loans right away.  Take your time, and only invest if you see loans that you like.  It doesn’t hurt you to have a little bit of cash sitting idle while you wait for a good loan to appear.


Even though most loans are three years, you’ll generally start to see money coming back after the first month (because the borrower typically pays the loan back on a monthly basis). Each payment you receive will consist of both principal (i.e. the money you’ve loaned the borrower) and interest (the compensation you receive for lending the money).

Eventually, that repaid principal + interest will accumulate to $25+.  At this point, you can take the money and reinvest it in a new loan.  I am constantly reinvesting the money I receive, so each month I’m able to invest in new loans without actually depositing more money into Lending Club.  I’d recommend doing this if you want to maximize your rate of return.

Streamlining the Investing Process: Filters

Lending Club allows you to save filters so that you can always see the loans that match your preferences (loan rating, verified income, etc.) and don’t have to set them each time you log in to look for a new investment.

You should set your filters to match your risk tolerance and other preferences, but in case you’re wondering what mine looks like, you can see it pictured on the right.

You don’t want your filters to be too restrictive because you might be filtering out good loans that you’d actually like to invest in.  Your best bet is to only filter out the types of loans that you definitely would not invest in.

Here are the key aspects of my filters (as pictured to the right):

  • Lending Club has approved the loan application.
  • Show loans of ALL grades.
  • Show both 36 and 60-month loans
  • Debt to income ratio must be 25% or less.
  • Exclude the loans I’ve already invested in.
  • Must have NO delinquencies in the past two years.
  • Credit score must be at least 695.


There you have it – that’s my investing strategy and how I make passive income with Lending Club.  There’s nothing too exciting about investing in loans – it’s like investing in a CD or stock.  You put the money in and sit back while you wait for the investment to pay off.  In this case, I believe the return is nice given the risk involved.

Once again, you can sign up for free here, and get started with as little as $25.  If you have any questions at all, please leave them in the comments and I’ll be happy to answer them.

If you decide to invest, best of luck, and hopefully you find it to be a great source of passive income like I do!

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47 Responses to “How I Make Money with Lending Club (My Investing Strategy)”

  1. Nice write up! Sounds like you have a lot of conviction with these good returns. How much have you invested with them and what are your plans for more?
    Sam recently posted… Build Robust Online Traffic By Speaking From Left To Right


    Eric G. Reply:

    Thanks Sam. I have about $3,000 invested, and I plan to keep increasing that slowly.

    Right now, we’re saving to buy a house (so I’m doing my best to hold most of my money in cash or short-term safe investments), so that will certainly impact the amount I’m willing to lock up for 3 years in Lending Club. Nevertheless, I will continue to reinvest the repayments as they accumulate to $25.


  2. > buy a house…

    Economy is starting to pick up. Don’t wait too long to get a mortgage. Once capitol starts moving out of Treasuries in a meaningful way, mortgage rates will take off. Another good employment situation report is all it will take…
    AmCy recently posted… First FOMC Meeting of 2013 Adjourned: U.S. Prime Rate Continues At 3.25%


    Eric G. Reply:

    Good point, AmCy. I’d obviously like to buy when prices and interest rates are low, but at the same time, I’m not going to rush into it when I’m not quite ready. :)


  3. Nice Eric, I have yet to jump into Lending Club, but have heard a lot about it. I’ve been using Prosper and so far have no complaints. I actually just kind of mapped out my own strategy for this year and am doing a mini-experiment with my criteria. Does Lending Club let you know if the borrower has taken out a previous loan and fully paid it back? Prosper does this and I really like that info.
    Ian recently posted… Prosper Loans Review: January 2013


    Eric G. Reply:

    I’ve been meaning to try out Prosper, but haven’t gotten around to it because Lending Club has been great for me.

    I don’t think Lending Club tells you if the borrower has had a previous loan and fully paid it back – I agree, that would be good information.


  4. Investing money through Lending Club is a nice idea.It’s very exciting.


  5. I’m nearly up to my $10,000 LC investment threshold and then I’m going to try out Prosper, up to $10,000 as well. My overall lending strategy is slightly different than yours, but I learned two things from this piece that will make the mechanics of selecting loans a little easier for me in the future! Thanks!
    Mike recently posted… Finding Balance While Reaching Your Goals (plus: Fitbit Challenge)!


    Eric G. Reply:

    Sounds like a great plan, Mike – hopefully you’ll be earning a lot of interest!


  6. I also have an account there-but haven’t lent anything yet. I am more focused on trying to get alternative incomes going and funding an emergency fund in the event that something happens. Then I plan to gradually invest up to $10,000 on Lending Club before moving to stocks and other investments.
    Mike recently posted… The Simple Task of Simplicity


    Eric G. Reply:

    Sounds good, Mike. Thanks for the comment!


  7. Hi Eric,
    This is a good post. Thanks for doing it. I’m pretty new at Prosper and LC and have been working on my filters.

    I think you got it right with the social signals. I look at the nearly ended listings with a lot of time too. I know that there are much smarter people out there than I with this.

    When I spoke with the LC rep, he said that all information is verified. Since this takes a little time, they start the loan and keep it “in review”. The loan only funds when the info is verified. That is the way that I understood what he said.

    I took the home ownership/mortgage out of my filters. There are lots of valid reasons for renting.



    Eric G. Reply:

    Thanks for the comment, Dave. Interesting, I didn’t realize that all loans that become active are also verified by Lending Club, but I guess that makes sense. Perhaps I shouldn’t be filtering out all the ones that are still “in review”, because I may be missing out on some other good ones.


    Mike Reply:

    Eric, one advantage to that block check is that you know the loan is going to be funded. As it stands, unless I check that block, I find that a sizable number of my notes don’t make it through review so I always have to go back time and again to select new notes to try. When you are trying to rapidly build your portfolio, this becomes a pain. So, now I often apply the same filter, which limits the notes (and sometimes the higher interest rate loans) but saves me time because I know the note will issue.
    Mike recently posted… Hedonic Adaptation: Building Assets vs. Buying Things


    Eric G. Reply:

    Good point – thanks for pointing that out, Mike.

  8. Sucks, I think you need to be American to use lending club as far as I can see


    Eric G. Reply:

    Sorry Matt – I forgot, I should have mentioned that in my post.


  9. Pretty cool stuff. I’ve been debating investing in Lending Club for awhile now. I’ll probably start after my get my current project more self-sustaining.


    Eric G. Reply:

    I’d definitely recommend it, Tim. Even if you start with a small amount, you can slowly build up your account.


  10. good stuff Eric,

    big fan of the concept but haven’t dabbled in depth.

    how long did it take you to get a hang of the “system” initially? how long after you were introduced to it did you start your first investment?

    today, as you are more seasoned, how long does it take on average to evaluate, select and invest in a project?

    overall, how much time do you spend on your LC initiatives weekly?

    sorry for the 100 questions, but I think this will give us all good perspective on rate of return on time invested.

    wish you the continuing best with LC
    Sunil – Extra Money Blog recently posted… Notes from My Google Adsense In Your City Visit and My 1 on 1 Meeting With Google


    Eric G. Reply:

    I would say that as of Day 1, I was investing. It’s a very easy system to navigate, and there isn’t a whole lot of information to collect and analyze for a particular loan.

    On average each month when I’m selecting loans to invest in, I probably spend about 5-10 minutes looking at each loan. It’s gotten much easier to browse the loans and quickly spot the positives and negatives.

    I don’t even work on my LC investments on a weekly basis – I probably log in once or twice a month, and spend a total of 10-15 minutes. It really isn’t something I consider to be time consuming at all.

    I’m willing to bet that there are plenty of people who spend more time than me researching the loans, and perhaps they earn a better return. From my perspective though, I’m happy to earn 6% for a negligible amount of time committed.


    Sunil l Expediting Wealth Creation Reply:

    any investments gone sour? there is risk here just as in any other loan extended to someone
    Sunil l Expediting Wealth Creation recently posted… Using the Google Custom Search Engine (CSE) to Boost Your Adsense Earnings


    Eric G. Reply:

    Indeed, there is risk. I’ve had a few loans that defaulted, and that loss is already factored into my ~6% return. It would seem as if the default rate for the loans I’ve invested in is somewhere in the 2-5% range.

  11. Sounds cool and great alternative to earn. I’m so impressive in the conviction that you show.Honestly I have no confidence to joint lending company.great job!
    Becca recently posted… Arborists Williamstown


  12. Is there any way, how a non-American from EU can invest on Lending Club, too? I consider LC one of the best servers for p2p lending and i’m very sad, I’m not allowed to register there :-(
    Inwebstor recently posted… Dividendové akcie


    Eric G. Reply:

    Unfortunately, I believe they only allow US investors right now. :( Sorry!


  13. What about taxes? How is that handled as you would owe taxes on any interest earned. And then the losses? What about those for taxes?


    Eric G. Reply:

    Lending Club will actually generate the proper tax forms for your at the end of the year so that you can correctly report them on your tax return.


  14. Thanks for sharing your success and helping others with their success.

    I do wish instead of telling people to sign up you would have had them sign up as being referred by you, they could have made a quick $100. In any case, this was a delight! :)


  15. great ideas for investing our money safely thanks for the share
    Rajkumar Jonnala recently posted… Facebook Security Tips to Avoid Risk


  16. Great review…..I’ve been debating whether to give Lending Club a try…..always interesting to read how other investors are approaching and filtering these loans.


  17. I loved the review and wanted to sign up just to browse and muster the courage to invest. Unfortunately, there seems to be two problems, kinda. Living in New Jersey it seems that I can only participate in the secondary Folio market available. It presents unique opportunities so I guess that would be a fine medium for my first investment voyage. The second – and far more important – says that my net worth, exclusive of blah blah blah must exceed $70k and I cannot invest more than 10% of that net worth exceeding $70k at any time? Silly me for reading the disclaimers but it seems this initial investment cannot transpire for me. Any insight into this?

    You also mention that Lending Club provides tax information for you – what about for the Folio side of investing? Can I just start putting in money and doing the investing thing and come January I get in the mail all the tax information I need, or will I have to go hunting for it and end up audited for forgetting something?

    Any information would be greatly appreciated! Love the site, by the way


    Eric G. Reply:

    Mike, I wish I could help out with the Folio market, but unfortunately that’s an area of Lending Club I haven’t used. I know certain states due have restrictions, and apparently New Jersey is one of them.

    And yes, Lending Club will provide you with tax information even for Folio. According to their FAQ:

    “At the end of the year, FOLIOfn will post in your trading account a 1099 statement that shows the proceeds from sales in the applicable tax year. The official 1099 is comprised of Page 1 and the 1099-B (gross proceeds from sales); other sections are supplemental. 1099 information is furnished to the IRS and must be included in your tax return.”


  18. Hey Eric,

    So you have about $3,000 invested and you invest $25 at a time into different loans, correct?

    You also made a comment that you are repaid monthly.

    Would you mind sharing what the monthly payments are? Do you have the full $3,000 invested or is some in cash?

    Thanks for being so candid. I’m going to create an account right now for both LC and Prosper using your affiliate links. I will browse both and see which one works best.

    Dale P recently posted… Trading Stock Options Online Aug 14 2013


    Eric G. Reply:

    Hi Dale,

    Yes, that’s correct. I try to keep all of my cash invested – in other words, once I receive payments that total about $50, I’ll log in and reinvest in two new loans. I would estimate that I receive $50-75 in repayments each month (part principal, part interest of course). Let me know if you have any other questions – I’d be happy to answer them!


    Dale Reply:

    So I signed up for both Prosper and Lending Club.

    I like lending club a lot better than prosper.

    Prosper has crashed on more than one occasion while I was trying to buy a note, and the info is not as user friendly as LC.

    I also like lending club more because it shows you your interest accumulated daily even before you get paid. This is encouraging.

    I’m adding more funds to my lending club account and I’ll just keep the starting balance that I deposited with Prosper. I might sell those notes and pull my funds out of prosper, but we will see.

    The monthly returns won’t be as great as what I make with stock options, but I like the fact that I will be getting monthly payments, and this strategy is unrelated to stocks, so I’m diversified.

    Question, do you ONLY limit your loan contributions to $25 at a time? do you ever invest $50 or more into one loan? What are your thoughts on that?
    Dale recently posted… Is Swagbucks a Scam?


    Eric G. Reply:

    Thanks for stopping by to share your perspective, Dale. I think I like Lending Club more too.

    I do stick pretty strictly to investing $25 at a time, so that I can make sure I’m diversifying as much as possible. If you see a loan you really like, however, and you have a decent sized bankroll for investing, there’s no reason you can’t do $50+ in one single loan.

  19. Good Article Eric.

    I have been using LC for about a year and a half and I use many of the same filters.

    One additional tip that I picked up on when looking at individual loans is that people who are requesting odd amounts (for example $12,755 versus $20,000) have a lower default rate. It shows that they are doing the research to find out exactly how much they need which in turn shows some sense of responsibility.

    Also, on my defaults, over 50% of them have been because of a deceased borrower. Kind of interesting.

    My LC Stats: – About 550 notes, 8.26% annualized return rate, 14 defaulted notes


    Eric G. Reply:

    Wow, great tip, Dan. I’ll definitely need to start paying more attention to the specific dollar amount of the loan.


    peanuttech Reply:

    I am at 8% most of the month but it can go up and down a bit. It may fall below 8% the last week of the month. I only invest $25 amounts per note. The no defaults within 60 months helps me stay above water. I like how you mentioned the loan amounts.


  20. Hi!
    I was wondering, when you get a repayment, does it automatically go into your bank account or to your account on LC.
    Does it cost anything to withdraw that money, if you get repaid on a loan, and want to have the profits you made from it.


    Eric G. Reply:

    Repayments on the loan go to your LC account. From there, you can withdraw funds to your bank account. LC does not charge any fees for you to withdraw your money.


  21. How do you manage Taxes? If you reinvest and don’t take money out. Do you have to pay annual taxes on earnings?


    Eric G. Reply:

    Yes, you do pay taxes annually on the amount earned, even if you don’t withdraw the funds. Lending Club sends you a 1099, which tells you how much income to report on your tax return.


    Jason Reply:

    Thanks Eric


  22. Hi,

    I’m just getting started with Lending club and i’m planning on investing $1,000 to start. But my main question is what does your diversification look like for any given month? I’ve been researching online and many people give various strategies of diversifying. I was wondering what your strategy was for that?


    Eric G. Reply:

    Hi Andrew,

    I don’t have a particular diversification strategy. I simply use my criteria and review the specifics of the loan before making a decision.


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