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Screenshot from lendingclub.com

This article announces my new project to start a LendingClub account and invest on their Folio note trading platform. This is not an article about direct lending on LendingClub because Texas does not allow me to lend directly through LendingClub. Don’t miss other net worth growing ideas on this site and subscribe for updates on my LendingClub trading account and new articles.

If you are SERIOUSLY considering the LendingClub trading platform, you will want to bookmark this site and subscribe.

I am excited to start a new income stream that I have read about on numerous finance blogs. The term that has been coined for this type of income stream is “social lending.” As you can see from the title graphic of this article, I will be participating in the services that LendingClub offers. Unfortunately for me, I will not be lending money directly to people because the state of Texas does not allow LendingClub to operate in that capacity. I will be taking part in their trading platform, which acts as a secondary market for purchased notes on LendingClub. Things happen and people need the cash, so they sell their notes on the trading platform.


First things first. I want to credit the financial blogs that I rummaged through to find this product. Remember, transparency.

fivecentnickel.com – Your articles and updates have been an inspiration to me. If I would have known that there was a sign up bonus for referrals, I would have hit you up. Then again, I tweet you sometimes and never get a response so I don’t know if that would have happened. Your 8.3% return through the end of May 2011 is awesome. I look forward to your continued monthly updates!

getrichslowly.org – Your entire site has been so helpful when it comes to researching LendingClub. Your forums are chock full of people who have successfully used this site to build an income stream. I follow you daily and have tweeted you a few times and never got a response. I understand you guys are all busy running your blogs and I respect that. I received a tweet back on June 30. It’s okay, I totally understand that Twitter accounts may be outsourced. I also follow J.D. Roth’s Twitter account as well.

moneyning.com – You have been, by far, the most relatable financial blog for me. The majority of the articles you write are relevant to me as a young professional. Just like the others above, I have tweeted you with no response as well. I’ll keep the dream alive though. Oh, and I want to know how you’ve done with those 5 figures at LendingClub since 2010. Hit me up!

Mitigate the Risk

I have researched this site for almost a month. I am very familiar with the risk/reward model of investing and I think LendingClub has many opportunities where I can mitigate risk and still perform way better than the highest FDIC insured savings rates. The drawback to mitigating risk is that I won’t be getting the “average” return that LendingClub advertises. I’m okay with that. I’m not looking to get rich quick with LendingClub. My goal is to grow my net worth at a quicker rate than if I put my money into an FDIC insured interest bearing account. As long as I beat those averages, I am in good shape.

LendingClub scores each borrower with a loan grade from A1 to G5, depending on their credit history. I will only be considering A grade borrowers to mitigate my risk. Some borrowers are in a dual income household, which also mitigates risk. I will also only be considering notes that are for debt consolidation. The premise there is that if a person is financially saavy enough to know they can consolidate their debt at a lower interest rate on LendingClub, then they’re more likely to be serious about paying their loans off. After another week of careful research, I have come to the conclusion that my previous considerations would be good if I were a direct lender. Since I am only allowed to invest through the Folio trading platform, there are other factors to take into consideration and I am not able to ask the lender any questions. My requirements have changed drastically and I will share them with you as I update my account so stay tuned. Make sure you subscribe to keep up to date.

One of the biggest contributions to the risk of investing at LendingClub is the fact that the company could close down at any moment. I have reviewed and continue to review their IRS statements and so far they are a profitable company so I am not too worried.

Let me make an important statement here. I am in no way saying that investing at LendingClub is like putting money into an FDIC insured interest bearing account. All I am saying is that I am using that as a benchmark for my returns. The risk associated with LendingClub is magnitudes higher than putting your money into an FDIC insured interest bearing account, but you can takes steps to mitigate it.


LendingClub charges a fee for each payment that they receive and process. This fee is charged to the owner of the note at a rate of 1% of the payment. I feel like this is a reasonable charge and am willing to pay it. Most of LendingClub’s money is made from the origination fee they charge borrowers.

Bottom Line

This is going to be a very exciting journey for me and I hope it will be exciting for you as well. I will provide monthly updates as well as write about any large shifts in strategy that I employ. Remember, my goal is to beat the highest of the FDIC insured savings rates, not to get rich quickly!

Let me make another important statement here. I am not suggesting that anyone open up an account at LendingClub. That is a decision you will have to make for yourself as I show you my results in the coming months and years. In fact, I don’t even feel comfortable linking the site in this article because I haven’t actively participated in LendingClub’s services as of yet. July will be my first active month and so my first monthly update won’t come until August.


7/2/2011 – It looks like I am a few working days away from buying my first LendingClub note!
7/6/2011 – Yay, my account has been funded and I am purchasing notes!
7/7/2011 – It takes a business day to settle the trades, but my heart sunk when my account balance updated!

Categories: Investing, LendingClub
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