As a personal finance blogger, I’m always researching and thinking about new ways to manage my money. Although I try to limit the amount of places I keep my money and try to focus on solid investments that’ll provide a safe return, in the past I’ve made some questionable investment decisions! I’ve put my money into crypto (Coinbase and BlockFi), and real estate investing through an online platform (Fundrise). Going back even further, in 2015 I decided to join a peer-to-peer online lending community called Lending Club. Although today in 2022 lending money online to strangers probably seems like something we’d totally do and is normal but in 2015 it was a bit farfetched! However in an era when stocks weren’t doing so much and interest rates on bank accounts were super low, it seemed like something worth looking into!

I’ve always been intrigued by Lending Club – the idea that there could be a sweet spot of risk and return between what a bank could provide you and the risk/return the stock market could provide has always been interesting. Throughout my 7 years investing with Lending Club I’ve put probably around $1,000 so nothing super noteworthy but it was fun to follow! All told I’ve averaged about a 5% return. Pausing to take a step back, 5% yearly for 7 years is pretty good. The stock market has had some good years much better than that but also has had a few negative years too. I’m big on diversification and having a slow and steady investment like LendingClub has been nice.

I’ve done a number of updates throughout the year and thought it’d be fun to do one final look back. Around the end of 2020, Lending Club actually got out of the business of peer to peer lending and were instead focused on becoming an actual online bank. This seemed quite late to the party to me (plenty of other established alternatives) but I was sad to see my investment source go away! They stopped issuing new loans but are continuing to service the existing loans. I’ve got <$65 left in outstanding notes and expect this to be $0 in the next month or two. So, here’s to a 7 year investing experience that earned me 5% annually and was fun! Here’s some final closing thoughts on this experiment.

How it all went

So all in all I returned an average return of 5% over the 7 years I invested in Lending Club. That’s certainly a better turn compared to the interest I earned at my bank account (which ranged from 0.5% to 2%) but compared to VTI, my favorite low cost index fund, VTI returned on average about 12% annually. So I probably would have been better off just putting my money in an index fund. It’s amazing how many times I’ve done this – I find a new flashy investment but in the long run it doesn’t do any better compared to an index fund. Sure some years it might but over the long run an index fund seems to just average out better!

It was a fun investing experience – it was cool to put $25 in (which is what the common amount you bought into a note – i.e. a loan) and see the repayments being made. It gave me some good perspective on how lending money works – how interest can be pretty powerful! It was fun to pick different risk levels for my notes (the riskier the higher the interest rate) and also fun to pick based on what people were borrowing money for (I always preferred debt consolidation and stayed away from “Vacation” or “Other”).

However in the end great perspective coming back to my rule of 8% (LINK), it wasn’t really worthwhile! It was definitely some work – but more work that I choose to take on by manually picking my own notes and checking my balance every so often. VTI, my go to index fund on the other hand could have been automatically invested into, had it’s dividends reinvested and grown on it’s own!

Why I think they stopped and why I think it would make sense again

So this is going to get a little financially nerdy but I think it’s interesting reflecting on what made Lending Club popular and then what led to it’s demise. Back in 2015 or so when I started investing, it was a pretty different financial environment. The stock market was pretty slow and wasn’t that exciting. Interest rates were fairly low too and there just didn’t feel like a ton of great places to get a good return. So, to chase a higher return I got into Lending Club –  the rates they were offering were 5-15% – depending on how the notes (loans) performed. At the time it seemed like a great deal!

Fast forward a handful of years to 2020 – the stock market was on fire. Interest rates were still pretty low and it seemed like any investment was a sure bet. As such, my guess is that Lending Club lost interest from investors. Why put money into Lending Club when you can put it into the stock market – i.e. a much more understood and known investment and be able to earn more? Also with low, low interest rates (I remember mortgages under 2%), I imagine that borrowers could get loans from regular banks at a more competitive rate. Why borrow money to refi a credit card from Lending Club at 8% when you can do it much less from a bank with a personal loan or from a low interest credit card that allowed balance transfers?

Fast forward to 2022 soon to be 2023 – the stock market has slowed down (or is negative) and interest rates are high again. Ironically I could see a world in which borrowing/lending money via Lending Club could make sense again!

Would I do it again

The great question! So the answer is no, but probably yes. No in the sense that over that time period (7 years), I earned less than I could have with a low cost index fund, had more confusing taxes and had my money in another spot, and arguably Lending Club was a bit more risky. Probably yes in the sense that I know myself, I’m a creature of habit and I love chasing new ways of making money. I did it recently with crypto and then with Fundrise. But, hopefully some of my own words of wisdom start sinking in and I keep my money in fewer places and remember that a low cost index fund is hard to beat!