Using Lending Club’s Note Trading Platform to Invest in Peer to Peer Loans

Lending Club, a website which allows its members to loan each other money through 3 or 5 year unsecured loans, currently only operates in certain states ,but other investors can buy existing loans through its note trading platform which is powered by Foliofn.

Lenders can purchase notes if they reside in any of the following states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Investors in other state’s can’t fulfill borrower’s requests directly, however, there’s no limitation which prevents them from buying out existing loans through the note trading platform. Lending Club’s note trading platform essentially allows for investors to have some form of liquidity. Before the note trading platform was available, Lenders were essentially stuck in the loans they had originated for the duration of the loan.

Lenders that want to sell their position in a loan can do so through the note trading platform if they find another investor to purchase the loan at an agreed upon price. Lenders often sell notes through the platform if they need the money for another purpose or if they think the loan will go into default.

If you live in a state where investors can’t participate in Lending Club directly, using the note trading platform can be a good way to participate in the peer to peer lending market, but be careful in the loans that you fund and be careful not to pay too much for a loan.

Some investors have also found success on Lending Club buy purchasing delinquent notes with the hope that the borrower will become current. Hank from Favstocks did just that, writing, “I recently bought a loan directly from another lender who had invested $25 dollars in May 2009. After seven months of paying on time, the borrower started having trouble making loan payments around Christmas. I ended up buying the remaining amount of the loan, approximately $15, for $5 in the hopes that eventually the lender will make good on his or her commitment. My hunch paid off, and yesterday, I received my first payment, interest, and late fee from the loan.”