Lending Club is now originating more than $24 million in loans each month, more double what its main competitor is putting out. It’s getting a lot of attention, but there are still a few Lending Club complaints that people have. To be honest, there’s only a couple of Lending Club complaints that we have and we think it’s a fine company overall.
One thing that Lending Club could do better is its reporting of the rate of return that investors are getting. Lending Club used to promote that investors receive an average rate of return of 9.67%, which is technically accurate, however, the rate of return is so high because it includes a large percentage of loans that are only a few months old. This matters because we know that anywhere from 7%-10% of loans will go delinquent during their three or five year term and a lot of the loans that Lending Club has issued simply have not had a chance to default yet. One of Lending Club’s competitors had an event in November to discuss how to calculate better rates of return. One suggestion is to calculate loans that have fully amortize. Looking only at loans whose course has run provides a better idea of how longs will perform over the long haul. This doesn’t mean that Lending Club is a bad investment, in-fact 91% of investors make between 6% and 18% back on their money.
The other Lending Club complaints largely revolve around the investing process on Lending Club, As an investor, you’ll often find that you have money sitting in your account that you have received from loan payments. You have to manually go in and re-invest these funds into new loans and you won’t make any money on the funds that you have sitting in your account that are not invested. There will always be some percentage of your money that’s sitting in your account but doesn’t receive any interest. You also don’t receive any interest on a loan when it’s in the funding process.
Lending Club has recently addressed this complaint with the Lending Club Prime account that automatically re-invests your funds for you. The only downside is that you can’t create a filter to choose what type of loans you want to invest in, you can only pick an interest rate range. It would be great if Lending Club were to adopt what their competitor Prosper is doing by allowing investors to create standing orders when a loan that meets a certain filter comes up. That would allow investors to automatically invest their funds and allow investors to only fund loans that meet the criteria they want to invest in.
Those really are the only two Lending Club complaints worth noting. Lending Club has a solid management team and has an excellent borrowing and lending process.