Lending Club: How Lending Club WorksLending Club is a social lending network that brings together investors and creditworthy borrowers to offer value beyond traditional banks.
Borrowers with good credit can get personal loans from $1,000 to $25,000 at interest rates that are often significantly better than rates from conventional sources.
For lenders, money invested goes immediately to Lending Club's approved borrower members. Most lender members spread their investment across tens or hundreds of qualified borrowers. Notes (that correspond to specific borrower loans) are offered only by means of a
prospectus. Click here to read about
risks of investing.
Lending Club Investment Analysis (
PDF)
Conducted by Javelin Strategy & Research January 2009
Executive SummarySince making its first peer‐to‐peer loan in June 2007 up until December 18th, 2008, Lending Club has facilitated $23.6 million in loans, connecting consumer borrowers with lender members seeking reliable investment returns through its online social network. Borrowers typically are seeking to refinance credit card debt or other higher‐rate loans, though some seek to pay for one‐time events or to fund a small business. On average, they borrow $8,249 funded by 48 lender members each investing $169 per loan.
During that same period, Lending Club funded approximately 53% of the loans originated through the platform. That was partly because it suspended loans from individual lender members for a six‐month period in 2008 while it sought registration with the Securities and Exchange Commission. Lending Club completed that registration in October 2008 and currently is the only peer‐to‐peer platform to complete that process. [RichardF note.
Prosper resumed lending July 2009.]
Applying underwriting criteria agreed upon with WebBank, the loan originator for the platform, Lending Club grades loans into 35 different classes, with higher‐risk loans assigned higher interest rates. The stated interest rate for all loans issued through Dec. 18, 2008 was an average of 12.34%, with a median of 12.29%. The prospectus for the Lending Club notes, available at
www.lendingclub.com, contains a more complete description of the platform’s operation.
At the close of November, the overall investment return averaged 9.05%, with a median return of 10.48%, based on a Weighted Average Return on Invested Capital (WAROIC). That calculation accounts for Lending Club’s 1% service charge, as well as for loans paid off early, hobbled by late payments or defaulted.
As of December 18th, 2008, nearly 12.4% of Lending Club’s loans, 10.7% of the dollars funded through the platform are still too fresh to have required a repayment. In terms of both number of loans and dollars lent, nearly 75% of Lending Club loans were current loans. About 8.8% of loans ‐‐ representing 8.3% total dollars funded, or about $1.6 million ‐‐ suffered from late payments or ended in default. The remaining loans were either paid off early or in a 15‐ day grace period.
If an individual had invested $10,000 on June 1st, 2007 in a representative group of loans on the site, the value of that individual’s account at Lending Club would have grown to $11,594 by November 2008 (assuming reinvestment of payments received). That return would have outpaced other common investments or indexes such as the Standard & Poor’s 500 Index ($6,289), the Nasdaq Composite Index ($6,605), 1‐year CDs ($10,678) and 6‐month Treasury bills ($10,501). This comparison factors in Lending Club’s 1% service charge but does not include fees and other transaction costs for the other investments. This comparison does not factor in differences in liquidity between Lending Club notes and the other investments or indexes. Notably, Lending Club notes can only be sold through the Note Trading Platform that was made available recently (on October 14, 2008) and there is no assurance that liquidity will develop on that platform.
