Lending Club Overview: How to Invest and Borrow

November 9, 2012

Lending ClubPeer to peer (P2P) lending has been taking off in the last few years, and one of the most popular sites facilitating these transactions is Lending Club. Lending Club provides a way for investors to earn a return by helping to fund borrowers who are looking for better terms than what is offered by many traditional banks. Lending Club acts as the intermediary, handling the transaction, collecting fees and figuring interest, processing payments and taking care of all the legal stuff that comes with lending money to someone.

How Lending Club Works

The idea behind Lending Club is fairly straightforward. Investors can invest in “notes” of $25. You can decide how many notes you want to go toward a borrower. The money is used to fund a loan for a borrower. With your contributions, plus the contributions of others, it is possible to raise funds for the borrower. The borrower receives the money, and begins making payments. Most of the time, the loans are three-year loans, but Lending Club has also begun introducing five-year loans.

When the borrower makes payments, your portion of that is distributed to your account by Lending Club, who figures which portion of the payment should go to all of the investors. As investors build up cash in their accounts, they can either use the money to reinvest in new notes, or they can withdraw the money to their own bank accounts. (It is also worth noting that Lending Club now offers an IRA option.)

How to Borrow from Lending Club

Borrowing from Lending Club is quite similar to the process of a traditional bank. This means that, after setting up a basic account with Lending Club, you will need personal information, including name, address, phone number and Social Security Number, among other information. Lending Club will check your credit report and verify your identity. Just as with a loan from another bank, your credit history will be one of the deciding factors in what sort of interest rate you end up with. You will need to review loan terms and confirm them, as well as set up your funding for loan repayment, and acknowledge the Truth in Lending statement offered you. Lending Club takes you through the process, step by step.

As part of your effort to borrow money via Lending Club, you will be asked to specify what you want to use the money for. Crafting a statement that shows that you are responsible, and that you are using the money to help you advance your financial situation – whether you are consolidating debt, paying for college, or financing a home business – can help you draw more investors to your cause. Once your loan is funded, you will receive money.

Investing with Lending Club

If you want to earn a return, you can do so by investing in notes – basically lending to other people. You will need to set up an account and you will need to fund your account. You need at least $25 in order to start investing at Lending Club. You can set up an ACH transfer with your bank, and have the money put into your account. This takes about four days. You can do an instant transfer, using PayPal, but there is a $250 minimum. You can also do a wire transfer, which takes one business day. However, there is a fee that comes with the wire transfer, charged by your bank. Then, you can start looking for people to help fund.

You can search by credit rating, or by using other parameters. When you identify someone that you want to invest in, you can add that note to your order. It helps to consider the the credit rating, as well as the story behind the need for a loan, when making your decision. Once you are ready, you confirm the order and assign the note to a portfolio. Just remember that this represents a risk, and you could lose money if the borrower does not pay back the loan.

Lending Club is quite easy to use and offers opportunities for borrowers and lenders alike.

Have you used Lending Club? What do you think about it? Leave a comment!


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Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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2 Responses to Lending Club Overview: How to Invest and Borrow

  • Peter Renton

    Good overview of Lending Club Miranda. Readers should also know that Lending Club is growing like gangbusters these days. Just last week they crossed over $1 billion in new loans issued since inception and they also announced they are now cash flow positive. Lending Club and p2p lending in general is growing because of the advantages for both borrowers and investors.


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