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Lending Club PRIME Review

Posted By Jim On 10/02/2012 @ 7:15 am In Reviews | 11 Comments

One of the big stories in the last few years has been the rise of peer to peer lending sites. I haven’t written as much about them on Bargaineering because I’m not allowed to invest! Only residents of certain states are allowed to invest at Lending Club [3] and, unfortunately, Maryland is not on the list.

That said, I still like to keep up to date on what’s happening and it turns out that Lending Club has a “mutual fund” type of managed investing option called Prime. (they also have some private funds for accredited investors, I’m speaking with someone about that too… look for a review of that in the future) While many people are familiar with the process of using Lending Club, and what the site offers, many are unfamiliar with the fact that there is a “prime” option.

Lending Club PRIME provides investors with a minimum investment amount the opportunity to take advantage of a different service — one in which Lending Club takes care of your note investing for you.

How Does Lending Club PRIME Work?

First of all, you need to have at least $25,000 to have a PRIME account. You can open your account as a regular taxable account, or as an IRA. If you have $25,000, you can go through the process in Lending Club of designating it as a PRIME account. Then, you decide what type of loans you want to invest in. Basically it boils down to deciding whether or not you want your notes to encompass low, medium, or high risk.

Once you have determined the desired risk level of your portfolio, Lending Club takes care of the investing. Your money is invested in different loans based on your desired level of risk. The loans are diverse, so your portfolio will be built using a wide variety of loans (A through G) that affect the overall risk in your portfolio.

As principal and interest payments are made on your notes, Lending Club automatically reinvests the money. Unlike the standard Lending Club account that requires that you log in and find new notes to invest in, PRIME keeps everything running smoothly, so you don’t have to do anything — except pay the 0.8% set up fee.

It is worth noting that the cost of PRIME is based on your initial investment. So, if you initially invest $30,000 in your PRIME portfolio, you will be charged a fee of 0.8% of the initial balance. However, once that is done, you aren’t charged for reinvestment. This is more of a set and forget it type arrangement. You designate your PRIME portfolio, pay your fee, and the Lending Club automatically does the rest. You can set up different PRIME portfolios, each with a different purpose, following the process each time.

Who Does PRIME Work For?

Because of the high minimum to designate an account as PRIME, this service is best for those who have a larger amount of investable assets. It’s also a good option for those who want to take advantage of investing in P2P lending, but who also don’t want to have to heavily manage their investments. It can be a great option for those who want to open an IRA (you can roll it over from another trustee) and use the money to build a nest egg over time. Ultimately, it’s meant for people who want to invest in peer to peer lending but don’t want to sift through loans themselves. Who else better to do that than the people who run the program?

Realize, though, that you are likely to see “average” returns with a PRIME account because of how it’ll be diversified and you are paying for the service. They do a lot of the heavy lifting but the cost is real, you are paying someone else to sift through loans. However, if you are more of a hands-off investor who just wants automatic re-investments, PRIME could work well for you.

What do you think? Have you tried Lending Club PRIME?


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[3] One of the big stories in the last few years has been the rise of peer to peer lending sites. I haven’t written as much about them on Bargaineering because I’m not allowed to invest! Only residents of certain states are allowed to invest at Lending Club: http://www.lendingclub.com/landing/invest.action?reg_referrer=bargainr&progId=2001

Thank you for reading!