Lending Club?

[Matt Rothwell]

I was looking at financing options, and I found the the "lending club" after a quick google. It sounds like a peer to peer loan service? Has anyone used it, either to lend money or borrow money? How does it work? Results?

[Dawn Anastasi]

I've used it, it's a fabulous service. I'm surprised more investors don't use it. It's a great way to get some quick cash at rates lower than hard money lenders. I've used peer-to-peer lending (both Lending Club and Prosper) to get quick cash to buy 3 properties.

How it works:
- You write an ad and request money, up to $35,000.
- The site checks out your credit and issues you a rate based on their rating scale. The better your credit/income, the better the rate you can get.
- Your ad is listed and individual investors can contribute any amount they choose, such as $25, $50, or in some cases thousands of dollars.
- You are limited to a total of 2 loans and your second must be after 6 months of on-time payments after the first.

I think some people on here are not a fan of them. I just wish these sites offered more loans through it.

[LEON GOUSMAN]

What are these guys lending criteria?

[Ryan Logsdon]

I was very interested in this a little over a year ago.

The big-name club I was interesting in joining divulged its loan history, separated by risk class (credit letter).

In every single class, there were 2 winners and 1 loser.

Winners: The website (for brokering their cut) and the loan recipient
Loser: the lender

Averaging across time, the average A-credit loan resulted in a loss to the average lender.

So as a recipient, those sites are great. As a lender, statistically speaking, they're worthless.

[Dave Carpenter]

Dawn A. A great idea. I am currently trying to find a private lender for a potential deal and may look into one of these places, though not sure 35k will be enough.

[Kenneth LaVoie]

I would disagree with the "2 winners 1 loser" - I use prosper and lending club. As long as you have a good number of loans, and use some intelligent criteria (not prefect just intelligent) it works well. My Prosper annual coc return is 10.4% and lending club is low 7%'s. This is before during and since the market crash in 2008 ...

[Ryan Logsdon]

Kenneth LaVoie disagree as much as you want with math, till you go blue in the face...

[Ryan Logsdon]

Kenneth LaVoie there are many published articles on the shortcomings of Prosper and Lending Club. I suggest you read them.

[Leo C.]

Plenty of space for bringing efficiency to banking to the benefit of everyone. The market is huge, payday loans and check cashing places makes a killing off the financially illiterate, 100-650% apr a year. Credit card companies can pull 20-40% apr regularly from wage slaving consumer over spenders.

If a platform can introduce 10% apr loans, plenty of room to grow.

Yes there's always the bank, just that they mostly lend to ppl who doesn't need loans.

Anyways, I don't understand why investors would do hard money with 20% apr equivalent after points when 10-12% apr is available via p2p loans.

[Kenneth LaVoie]

Ryan, my returns have been very good for years and years. If I read something that says that they're not, should I assume I'm wrong and not use them any more? I don't get it. If I drink water when I'm thirsty and it quenches my thirst, but an article says, "drinking water shown not to quench thirst..." What is my next move...?

[Ryan Logsdon]

Simple. You're in the minority of investors who have made money. As I said, the average investor loses.

I find it a very poor investment strategy to believe you can beat what is proven.

There are many strategies that require much less luck. No luck, preferably. But "drink up" if you like it.

[David Beard]

Ryan Logsdon - why don't you back up your statements, rather than be reflexively defensive. Kenneth gave his personal experience over multiple years. What site did you investigate (your "big name club", why are you vague?), and where is the data that you reference? Were you made privy to some confidential, inside info?

It took about 2 seconds to find this information regarding LC.

https://www.lendingclub.com/info/statistics.action

Looking at the graph on the lower left, are you stating that they're manipulating or erroneously reporting the data? Some kind of statistical slight of hand? Is it overweighted by newer loans that haven't had time to go bad yet? What is your thesis?

[Brandon Turner]

Just to throw this out there- if anyone does use Lending Club - BiggerPockets has an affiliate relationship with them, so it helps BiggerPockets to go through our link but doesn't cost you any more.

Here's that link: Lending Club

Thanks everyone!

[Karen Margrave]

I don't know about either of the clubs mentioned. What I do know is that no matter what type of business you are doing, if you are looking on the internet, make sure you check the companies out the same as you would a brick and mortar business. Check any licensing that is required and if they are current, or have any complaints filed against them. Try to get actual samples of deals closed that can be verified. DON'T rely on a simple search online... obviously they can be writing their own positive references, etc., and their competition can be writing negative letters, etc.

When making posts on BP in regard to these types of things, let's try to give facts when possible, and your first hand experiences, those are the most helpful.

[Ryan Logsdon]

David Beard as I said, the data was published by the company.

[Ryan Logsdon]

I find it funny, being called "defensive" for relying on empirical evidence.

As Karen said, everyone should do their own due diligence.

[David Beard]

Ryan, let's see the evidence, that's sort of the point of the forum. We don't know you from Adam.

[Ryan Logsdon]

David Beard no, but thank you for the invitation.

[Ryan Logsdon]

Maybe you can do as you've asked. Vet the information on the link that you posted.

As you've chided, you don't know me. Why trust me?

[Steve Luo]

Originally posted by Ryan Logsdon:
I was very interested in this a little over a year ago.

The big-name club I was interesting in joining divulged its loan history, separated by risk class (credit letter).

In every single class, there were 2 winners and 1 loser.

Winners: The website (for brokering their cut) and the loan recipient
Loser: the lender

Averaging across time, the average A-credit loan resulted in a loss to the average lender.

So as a recipient, those sites are great. As a lender, statistically speaking, they're worthless.

Good summary.

I was looking at p2p lending to invest my fund. And found out exact the same thing.

The result is published for anybody to see. But some people like to gamble, then good luck.

[Ryan Logsdon]

LOL! Good luck in deed David Beard and Kenneth LaVoie

[Chris Martin]

There are other discussions about P2P lendng (prosper, lendingClub being the most frequent) on BiggerPockets. Here are a few:

What ways can an individual invest in real estate PASSIVELY, with minimal risk, and get 5-15% ROI?, 10% return non RE investment, Money360 may revolutionize "hard money" lending, Peer to Peer Lending Sites, Has anyone tried lending on prosper?

The last topic has reference I made to other sites that kept track of "real" performance. I think all these references are now very dated.

I have to say that the chart in the URL that David provided looks really great. What is facinating to me is that http://www.lendstats.com (like the old prospers.org site) has much more modest numbers across prosper and lendingClub. You can get so much detail in LendingStats... it is quite an interesting site. Why don't the numbers match? It's all in the loans that you decide to exclude. What exactly does lendingCLub mean in the fine print by "net of defaults" in their website graph presentation? I had to look it up. The closest thing I could find is this site http://en.wikipedia.org/wiki/Lending_Club reference, that implies under "Loan performance statistics" that defaulted loans are not included in "net of defaults" calculations.

I guess it's the equivalent of "rent - mortgage = profit". Just exclude all your other expenses and the performance looks good. Sellers do it all the time, right? And they put it on their website because it's part of their sales strategy.

[Ryan Logsdon]

Chris Martin As the saying goes, you've found the devil in the details.

"Net of..." means "minus" or "without taking into account."

That's not to say it's deceptive. It's plainly not. However, it will lull the unassuming investor into a false sense of security. It'll make David Beard's link look good.

It's used to explain the results of performing loans without those loans that are in default detract from the bottom line.

This is common. You see it in other forms in the S&P where under-performing stocks are removed from the list and replaced. That would be net of under-performance (EDIT: this is really a stretch of an example.. there's no net of under-performance, but I hope you understand the point that it serves a purpose and is commonly accepted in use).

[Steve Babiak]

Chris Martin Ryan Logsdon David Beard - here is the link from LendingClub.com that gives more of the story:

https://www.lendingclub.com/public/lendersPerformanceHelpPop.action?v=2

[Ryan Logsdon]

Steve Babiak thanks. I came across that as well.

[Chris Martin]

Hey, people can count anyway they want. It's their web site. RealtyTrac did the same thing regarding foreclosure numbers. The bottom line is if it works for an individual, that is all that matters.

I will add this final (my final) tidbit to the topic. The last I checked, NC residents could not lend through these venues because of the series of cease and desist orders (11/2008), class action suits, SEC violations, etc. That was a lot of years ago. As far as I know, NC residents still can't lend via these sites. personally, I don't care either way since I have a SDIRA an lend secured funds. Regardless, the industry, unlike when I started lending, has matured and these companies now seem to have procedures and accounting in place to create a much better service than what seems like a decade ago when my account wasn't frozen.

References: SEC 10-K from 2009, section "Our Prior Operating Structure" pertains to my experience.

I view this as the cost of being an early adopter. Being in on a technology 'first' or 'early' has benefits and drawbacks. That's the way it is.