Peer-to-Peer Lending: Lending Club Complaints: What Lending Club Could Do Better
As of the end of 2009, Lending Club is now originating over $6 million in new loans per month, almost three times what its primary competitor, Prosper.com, is putting out. Although it’s currently getting a lot of attention while Prosper.com is languishing with low amounts of capital, there are still some things that Lending Club could do to provide a better experience to its investors.
We don’t have too many Lending Club complaints, but the company could do a better job of explaining the rates of return that its investors are receiving. Lending Club currently boasts that its investors are averaging a 9.67% rate of return, which is technically accurate, but that rate of return is only so high because the average age of loan is only 14 months.
Why does this matter? We know that about 9-10% of loans will be delinquent or go into default over the 3 years that loans on Lending Club amortize and when most of the loans are relatively few, most of them had not had the time to go delinquent yet. Perhaps a better way to gage performance would be to look at loans that are close to being fully paid off, such as loans that had originated in June and July of 2007 when the company was first founded. Looking at these loans alone will give investors a better idea of how Lending Club loans perform over the life of each loan.
The other Lending Club complaints that we have largely revolve the investing process itself. Quite often, you’ll find yourself with some money in your account that you’ve received from a payment and haven’t had a chance to re-invest it yet. In essence, there will always be some percentage of your money that’s sitting and doesn’t earn any rate of interest. When you bid on a loan, that money is also locked up for a week or two before the loans is technically originated.
With Lending Club, you’re going to lose out on the time value of money in the process. Lending Club could mitigate some of these problems by paying lenders a fixed interest rate as a money market fund for the funds they do not have invested like PayPal offers with its balances.
The other improvement we would like to see is to provide a way to invest a fixed amount of money and then automatically fund new loans as investors collect the $25.00 minimum to partially fund a loan. Lending Club does offer a “click free” investment option where they will invest your funds for you, but it’s currently only available to investors with $10,000 or more.
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Great post but complicated to understand since I am from Faroe islands ;-) 
What would be your top three tips for anyone new to this topic?
i do not see this as nitpicking. i find it very reassuring, in fact. hopefully lending club can read this and improve thier service for investors. i agree that the program is good for america overall.
landing club and lending tree ,they full you,they are same like banks,i was think they can help me
My big issue with lending club is the 1% fee charged to the investor on all payments received. This leaves open the very real situation where an early repayment could push the money returned on a PIF loan to less than the principal lent.
By Lending Club's funny math, I have an annualized return onf 10.4%, even though 1 of the 4 loans I funded was charged off. At the end of the day I will be lucky to break even, chalking the 2 missing years of TVM up to experience.
Just like big banks, you have to fund A LOT of loans to actually make money as a micro-lending proprietor. If anyone in America is in the court of opinion that the current lock-out of some borrowers is unfair, loan your funds to someone on LendingClub.com or Prosper.com and see what it feels like to have someone default. I use both sites (they charge the same fee) and have seen a few defaults. I don't blame the OP for stating that the policy of LendingClub.com not paying money-market interest for funds not invested by the investor in a borrower's notes makes the experience a little numbing while you wait almost 45 days before you experience your first gain (or loss). I pray all you investors and borrowers wealth and prosperity.
Just like big banks, you have to fund A LOT of loans to actually make money as a micro-lending proprietor. If anyone in America is in the court of opinion that the current lock-out of some borrowers is unfair, loan your funds to someone on LendingClub.com or Prosper.com and see what it feels like to have someone default. I use both sites (they charge the same fee) and have seen a few defaults. I don't blame the OP for stating that the policy of LendingClub.com not paying money-market interest for funds not invested by the investor in a borrower's notes makes the experience a little numbing while you wait almost 45 days before you experience your first gain (or loss). I pray all you investors and borrowers wealth and prosperity.
Lending Club aproved me for 25k and then one week into the process reduced my loan ammount to 5k…did it on Friday right at 5pm….and then I felt they tried to pressure me to take the loan…pay it off and re-apply for a lrger ammount….I felt they should have let me know a lot sooner that they wouldnt be able to aprove the ammount they did. By the time they notiffied I had already called my creditors and told them I was paying them off. They put me in a very tight situation, the person I got on the phone was very insensitive…almost aloof…as if enjoying the situation I found my self in. He must of had a good lauhg with his co morkers at my expense……would'nt recommend them…..and will add a negative comment on my tweeter and facebook account.
I don't think this is nitpicking either. I'm a lending club member and I have the exact same complaints. I'm checking my account constantly to see if money is just sitting there. I'm a member of the trading platform as well which allows you to buy other people's notes but most of those notes aren't desireable, hence, I'm left with a balance of 20 some odd dollars at any given time that's not collecting any interest.
That's rough dude! I feel bad that you had to go through that experience. Nothing is for sure until the money is in you account – the key is not to make plans based on assumptions. Good luck!
I didn't think that the two models are comparable. I'm only making 3.35% in prosper after about 24 month. Too many investors don't know how to price credit properly – crows out people who actually know what they are doing. I also feel that Prosper is not grading the borrowers correctly – how could anyone lend at the fixed rate of 30% and not be a predator? Lending club, on the other hand, prices out all grades of credit, its first come first serve, take it or leave it – none of this bidding BS. My LC notes had 13 months to burn out – still running at 11.5%.
Has anyone done a lot of trading of LC notes on the secondary market? The platform totally sucks – there has to be a bidding process for the notes if the secondary market is to work at all. No body can price a note correctly the first time! The way thins are people who list the notes have absolutely no price discovery mechanism, how are the notes suppose to transact?
I got no info on volume and pricing – what are the premium / discount as a function of credit score movement and time to maturity? Anyone? Anyone?
That's rough dude! I feel bad that you had to go through that experience. Nothing is for sure until the money is in you account – the key is not to make plans based on assumptions. Good luck!
I didn't think that the two models are comparable. I'm only making 3.35% in prosper after about 24 month. Too many investors don't know how to price credit properly – crows out people who actually know what they are doing. I also feel that Prosper is not grading the borrowers correctly – how could anyone lend at the fixed rate of 30% and not be a predator? Lending club, on the other hand, prices out all grades of credit, its first come first serve, take it or leave it – none of this bidding BS. My LC notes had 13 months to burn out – still running at 11.5%.
Has anyone done a lot of trading of LC notes on the secondary market? The platform totally sucks – there has to be a bidding process for the notes if the secondary market is to work at all. No body can price a note correctly the first time! The way thins are people who list the notes have absolutely no price discovery mechanism, how are the notes suppose to transact?
I got no info on volume and pricing – what are the premium / discount as a function of credit score movement and time to maturity? Anyone? Anyone?