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I love the idea of removing the banks as the middlemen, but remember that these are unsecured loans. Reminds me of the old saying “past performance is no guarantee of future earnings”. So it’s possible that 5 out of 5 highly rated borrowers would default and walk away with just a ding against their credit rating. In hind-site, I can guess that my borrower got involved in a bad housing situation, so his ten thousand dollar loan was just a minor pimple on the butt of being massively underwater from a new home purchase.

In my opinion lending club (or the other P2P companies) should provide lenders with detailed postmortems of failed loans, and factor those details into future borrower ratings.

@Executioner Yes, you do receive tax papers and must pay income tax. Have to look into whether its considered ordinary income or capital gains – it used to be ordinary income (taxed the same as bank interest) but may have changed with SEC registration.

@Jenny Thanks for your thoughts. yes, my return is a little lower than yours ,though still above the average that Lending Club reports. I have no doubt that riskier investments can pay off – I just go so burned on Prosper that I never even tried on Lending Club. Maybe I’ll start a new portfolio of higher risk loans and compare performance in several months! Would be a good blog post

@different results I’m sorry for your experience – at least it was free money! your experience definitely underscores the importance of diversification – if you had invested in two loans you would have only lost 50% of your money, in 5 only 20%, etc. You happened to have really bad luck with one loan. P2P lending is definitely not without risk – its an investment, and you can experience losses. thanks for providing a different perspective.

25 dollars “invested” 5 dollars returned.

[...] How to Earn High Returns with Lending Club [...]

[...] How to Earn High Returns with Lending Club – I’ve been a fan of Lending Club for a while now and it’s because I have had success in finding great returns and high-quality borrowers that don’t default. Learn some of the secrets to get you the most return on your Lending Club money. [...]

If you are looking for a little bit more risk and potentially a higher return, then you do need to review all the info as you stated. I will generally only invest in higher risk loans if they are for a small amount, like $10k or less. The higher the risk, the lower I like the amount to be. Like you I also screen the reason for the loan. Sometimes people just had a bunch of mistakes early on in their credit history (I know I did once upon a time) and now they are on track but still need assistance.

I would encourage those who can tolerate it to take the time to look through some of the riskier investments because they can be worth it.

Executioner, I think any interest you earn is considered interest income and had to be reported. Lending club does provide an end of year statement into your documents section of your account.