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Update (2026): LendingClub closed its retail peer-to-peer investing platform — the “Notes” individuals used to buy — at the end of 2020. You can no longer invest in P2P loans through LendingClub; it operates as an online bank now. I'm keeping this page as an honest record of the three years (2011–2014) I invested, because the lessons still hold up. If you're a service member or military spouse looking for where to put your money today, skip to what I do instead — short version: max your TSP and buy low-cost index funds.
Back in January 2011, six months into my first real job after college, I was frustrated with the up-and-down returns of the stock market and looking for a way to grow my monthly cash flow. Real estate wasn't an option — I knew I'd be moving within 18 months — and CDs and savings accounts were paying almost nothing. Then I found Lending Club.
The peer-to-peer (P2P) lending idea was familiar to me from Kiva, the microfinance site where I'd made $25 loans to entrepreneurs in the developing world. Kiva's default rate was around 1%. Could Lending Club deliver similar low risk with a higher return? I put in $1,000 to test it, and over the next three years I learned a lot — including, eventually, why it wasn't the right place for my money. Here's the whole story.
In this post:
What peer-to-peer lending was
Peer-to-peer lending — also called person-to-person lending or social lending — is simply the practice of lending money to individuals through an online platform. Instead of a bank using your deposits to make loans and keeping most of the interest, you lent your money directly to borrowers and collected the interest yourself. The borrower got a lower rate than a credit card; you got a higher return than a savings account; Lending Club took a small cut (about 1%) for matching the two sides and doing the underwriting.
Lending Club was a San Francisco company, founded in 2007 (originally as a Facebook app). It was the first P2P lender to register its loans as securities with the SEC, in 2008 — which added a lot of legitimacy and meant each “note” was a tradable legal document.
How Lending Club worked
The mechanics were straightforward:
- Borrowers — usually with FICO scores over 700 — requested a loan of $5,000–$35,000 for things like debt consolidation, a car, or a credit-card payoff.
- Based on creditworthiness, each loan was graded A through G (A = lowest interest, lowest default risk; G = highest interest, highest risk), with a number inside each grade.
- Each loan was split into $25 “notes.” A $5,000 loan might be funded by 200 different investors at $25 each — so if a borrower defaulted, your exposure to that one person was just $25.
- You received principal and interest every month. Each time your payments added up to another $25, you could buy another note and compound.
- Need out early? There was a secondary market (FOLIOfn) where you could list and sell notes, usually within a few days.
That $25-note structure made diversification easy — and diversification, as I'll explain, was the whole game.
Was Lending Club safe?
This was the biggest question I got, so let me be blunt: Lending Club notes were not FDIC insured, and you could lose money. The only truly guaranteed places in financial life are FDIC-insured accounts and US government-backed bonds. Everything else, including P2P notes, carries risk.
The main risk was default (a “charge-off”). When a borrower stopped paying, the loan moved through grace and late stages, and once it was more than a month late the odds of recovery dropped toward 50% — once it fully defaulted, recovery was near zero. There were two ways to manage that risk:
- Diversification. First, only put a slice of your net worth into P2P at all — I capped it at 10–20% of my liquid net worth (think of it like part of your bond allocation). Then, within Lending Club, spread across many notes. Historically, investors holding 800+ notes all had positive returns.
- Filtering. Lending Club already rejected ~88–90% of loan applications. On top of that, you could filter by grade, income, delinquency history, and loan purpose to avoid the loans that historically performed worst. Filtering, not chasing the highest interest rate, was how you raised returns and lowered defaults.
My actual results over three years
I started with about $900–$1,000 in February 2011 and added small amounts over time, ending around $2,200 invested across ~90–95 loans. Here's how my returns moved as the portfolio aged:
| Milestone | Net annualized return | Charge-offs | Notes |
|---|---|---|---|
| 18 months (Oct 2012) | 8.35% | 2 | ~60 loans; mostly conservative A/B grades |
| 2 years (Mar 2013) | 6.23% | 5 | 87 loans, ~$2,158 lent; ~5.4% loss rate |
| 3 years (Feb 2014) | 8.18% | 7 | 95 loans, ~5.6% loss rate, $14.85 fees |
A few honest takeaways from my own numbers:
- My returns bounced between roughly 5% and 8% — decent versus a savings account, but I was doing it with a lazy, under-researched approach early on.
- The charge-offs really mattered. A ~5–6% loss rate eats a big chunk of a ~14% average interest rate. One of my defaults was an A4-grade borrower with a 720 credit score and no red flags who simply stopped paying after a few months — his score dropped 140 points, and I lost most of that note's principal.
- Most importantly: over that same three-year stretch, the S&P 500 returned about 11% annualized — and that was before dividends. My ~8% from Lending Club took real ongoing work; the index did better on autopilot.
How I tried to make money with it
The “set it and forget it” auto-invest options were convenient but left returns on the table. The edge was in filtering. As an example of the strategies I tested: investing only in C and D loans earmarked for credit-card payoff, with a minimum FICO and income filter, historically pushed expected returns above 10% while cutting the default rate below 2%. I back-tested filters using the monthly data Lending Club published (and third-party tools like NickelSteamroller and LendStats) and ran my picks into a separate portfolio to track them. It worked — but it was a lot of ongoing effort for a small account.
What about taxes?
I'm not a tax advisor and this isn't tax advice — confirm everything with a CPA. Lending Club interest was taxable as ordinary income. The wrinkle: Lending Club only issued a 1099-OID per note that earned $10+ in a year — and since most notes were just $25, almost none hit that threshold individually. So many investors (me included, in 2011) received only a year-end statement, not a 1099. I reported the total interest from that statement as a line item alongside my bank interest. Again — check with someone who actually knows tax law.
Why I quit after three years
In early 2014 I stopped adding money. A few reasons:
- Ordinary investors got crowded out. As P2P proved itself, institutional money — hedge funds, banks, even sovereign wealth funds — flooded in. The best loans were snapped up in seconds by automated systems. Individuals were left with the leftovers.
- The idle-cash problem. Unlike my TSP and Vanguard accounts, where every paycheck auto-invested and dividends auto-reinvested, P2P left meaningful cash sitting idle earning 0% while I waited to find good loans.
- It was illiquid and high-effort. To beat ~5%, you had to actively filter and back-test. It was a part-time job for a small slice of my portfolio.
- The math didn't justify it. ~8% with real work and real defaults, versus ~11% from a total-market index fund on autopilot.
P2P lending was a genuinely interesting, uncorrelated asset class — I'm glad I tried it. But as a young investor with a long time horizon, low-cost index funds were the obvious better home for my money. (As it turned out, LendingClub shut the retail platform entirely a few years later.)
What I do instead — and what military investors should do today
You can't invest in Lending Club P2P notes anymore, but the bigger lesson is one I'd give regardless: for almost everyone, boring beats exotic. Here's where that money goes for me now, and where I'd point any service member or military spouse:
- Max your Thrift Savings Plan (TSP) first — especially to capture the full BRS match, which is an instant, guaranteed return no P2P loan could touch.
- Low-cost index funds (the C/S/I funds in the TSP, or a total-market fund like Vanguard's in an IRA) for long-term growth with no loan-picking required.
- A Roth IRA alongside the TSP to round out tax-advantaged space.
That simple, low-effort, low-fee approach has done far more for my net worth than chasing yield ever did. If you want the full playbook for building wealth while you serve, that's exactly what the rest of this site — and my free email course — is built to teach.