I’ve signed up for Lending Club using the link on your post. This seems like a fun investment alternative. Is your free ebook “Pay Less for Life” offer still available? I didn’t sign up because of that, but I’m definitely curious about what you wrote in there! =)

It’s definitely time for me to post an update. I started in April and currently have just over $25,000 invested in Lending Club. Like Mike (who wrote the comment above this one), I have just over 200 notes. I have had 3 defaults. I sold each of those on the trading platform for a total loss of about $25. I currently have one labeled as “late”, though the notes say the borrower has promised to pay.

My net annualized return is currently 11.97%, and I’m making a couple hundred dollars a month in interest income. This far eclipses the interest income I make from my ING Direct savings account!

I’d recommend Lending Club for any money that you’d put in a CD. It’s not liquid enough for a true emergency fund (IMHO, an emergency fund shouldn’t have its principal at risk.) However, for an alternative to the stock market or certainly to CDs, it’s great.

I haven’t used Prosper, mostly because I’m really happy with Lending Club.

-Erica

But within a few months, lots of people started defaulting on their loans, even those who seemed to have superb credit. Online borrowing attracts people who are planning not to pay. Prosper predicted there might be a few, but now about 25% of my loans have defaulted. As I’ve read more, I’ve found out my experience is typical. My return is now 2% and soon I’ll be in the red.

At first when I heard others say they lost money, I thought it wouldn’t happen to me – I was smarter and luckier than everyone else. Now I’ve found out that defaults always start out small in the first few months, but then after a year, they grow until all the profit is gone. The 9% that this blog says you’ll make is impossible.

People who are excited about online lending either (A) have only been involved a few months, or (B) are making $25 for each person they convince to sign up. Erica might make some money from all these referrals, but if she invests it in lending, she’ll likely lose it to loan defaulters.

The one thing I’ve gotten out of online lending is empathy for banks. Now I know what it’s like to trust people with my money, and see them walk away laughing at the thought of repaying me. I guess that’s worth something, isn’t it?

Yep, the income/net worth requirements are a real bummer. You can thank the SEC for those; it’s the only way the government allows Lending Club to remain open.

Thanks for reading!
-Erica

Thanks for the resource! Pretty interesting — the site says that grade “A” loans have less than a 1% default rate. Maybe the best thing to do with Lending Club, then, is to only invest in “A” loans — despite the lower interest rate, it’s still better than what you’d get in a savings account.

There are some inherent risks involved with this sort of lending. On the other hand, I really am sold on the concept…it’s just new, so it will take some time and adjustments to figure out how best to work with it to make money.

-Erica