Three Lending Club Investment Strategies

Investors are facing more volatility in the stock and real estate markets and are turning to alternative investments to diversify their investment portfolio. Many investors are now giving peer to peer lending websites a look as a way to invest in consumer debt, but there is some skill required if you are going to be successful as a peer to peer lender.

Many investors providing loans to individuals through Lending Club have implemented different strategies to maximize the safety of their investments and maximize their rates of return. Here are 3 Lending Club strategies that investors have been successfully using.

Strategy 1 – Minimizing Risk

Some investors are focused on making sure that they only originate loans that are extremely likely to repay. They do this by only originating loans where the borrower has a credit rating of ‘A’. In the last year, only 0.86% of borrowers in the ‘A’ range have been delinquent or in default on their loans. Borrowers hoping to minimize their risk also spread their funds across as many different ‘A’ level loans as possible so that they do not have too much money put into any one borrower. These lenders have been earning averages rates between 7% and 8% on their money.

Strategy 2 – Buy the Market

Some lenders aren’t interested in combing through each loan and checking the borrower to meet a certain level of criteria, so they use Lending Club’s “Lending Match” to invest in a broad swath of loans. This is probably one of the easiest lending club strategies to implement. This would be similar to investing in an index fund. Some loans will perform extremely well and a small percentage will default. You’re investing quite a bit across a lot of different funds knowing that most of them will do well. The average rate of return that Lending Club states that its lenders get is 9.64%. Lenders using this strategy would very likely see rates close to that rate.

Strategy 3 – Combing Through High-Risk Loans

Some experienced lending club lenders, including Scott Langmack, have developed a specific set of criteria that they use to determine whether or not they should fund a borrower for their lending club strategies. The qualifications typically include the reason the person is borrowing their loan, the longevity at their job and their history of repayment. Typically, these investors will put money into higher risk loans hoping to pick and choose which borrowers will repay. This strategy requires a significant amount of time, but can result in interest rates near or above 12%

If you’re interested in becoming an investor with Lending Club, visit www.lendingclub.com.