The Lending Club had a study done by Javelin Strategy and Research to investigate the possible returns savvy investors might receive on the Lending Club platform. Obviously, the report will have a positive bias towards Lending Club (if the study had turned out negative, it is much less likely Lending Club would have released it, no?). The study also is specific to the Lending Club platform, which is the only viable option out there for US investors now. Other platforms, like Prosper, are in hibernation untangling legal hassles with the SEC. Funny how the SEC has plenty of time to menace the Peer-to-Peer borrowing and lending platforms, but can allow a Bernard Madoff operate for decades stealing money. The Peer-to-Peer market is literally pennies on the dollar compared to the Madoff losses – $50 billion vs. Lending Club loans of almost $25 million. Way to prioritize SEC!

But I digress. Lending Club is operating and legal. When they first opened their doors back in 2007, I was lucky enough to receive a loan for some home repairs. The process was truly a joy. At first, I was turned down, but luckily humans do intercede and review applications. I was offered a loan and took it. Hopefully, the people that invested in my loan are happy with the return on their money and the fact that I am current on the loan. Additionally, I have not paid back the loan early – which reduces an investor’s return on that investment over the long-term and just generally makes more work for the investor.

I pulled this paragraph from the study, as I think it highlights some of the most compelling reasons to consider investing some RISK money (it is still RISKY!) in a social lending platform like Lending Club:

If an individual had invested $10,000 on June 1st, 2007 in a representative group of loans on the site, the value of that individual’s account at Lending Club would have grown to $11,594 by November 2008 (assuming reinvestment of payments received). That return would have outpaced other common investments or indexes such as the Standard & Poor’s 500 Index ($6,289), the Nasdaq Composite Index ($6,605), 1‐year CDs ($10,678) and 6‐month Treasury bills ($10,501). This comparison factors in Lending Club’s 1% service charge but does not include fees and other transaction costs for the other investments. This comparison does not factor in differences in liquidity between Lending Club notes and the other investments or indexes. Notably, Lending Club notes can only be sold through the Note Trading Platform that was made available recently (on October 14, 2008) and there is no assurance that liquidity will develop on that platform.

Plenty of caveats to keep in mind, but the basic message is that a prudent investor can make a higher rate of return with Lending Club than low risk investments like CDs and treasury instruments.

Related articles by Zemanta

• Peer to Peer Lending Becoming More Popular (bargaineering.com)
• Peer to Peer Lending Offers High Returns In Low Rate Environment (frugaldad.com)
• SEC Outlines Its Reasoning For Shutting Down P2P Lender Prosper (techcrunch.com)
• Prosper Goes Quiet and Lending Club Releases 10-Day Loan Numbers (centernetworks.com)
• Geezeo: Money Management With A Perk (lifehack.org)
• U.S. market stays aloft on bank optimism (windsorstar.com)
• LendingClub Video: How Peer to Peer Loans Helps Others (bargaineering.com)
• Prosper.com the P2P Lending Startup is Shutdown (thenextweb.com)
• SEC: Prosecutors May Target Bernie Madoff For Perjury (huffingtonpost.com)
• The SEC is Keeping Us Safe From … Something (paul.kedrosky.com)
• Online Lending Clubs Challenge Bank Loans (cbsnews.com)
• Credit Cards Calling The Shots (frugaldad.com)
• Social media changes in 2009 (othersidegroup.com)