I've been a LendingClub investor for almost a year now and want to validate everything hobo has said.

I'd recommend anyone interested in peer to peer (P2P) lending to read as much as possible before jumping in. Peter Renton runs a website, lendacademy.com, and has authored a couple of books on the subject. He's very approachable and his books are pretty straight forward.

I started out with a $2500 investment to get my feet wet and learn the system. I'm now an order of magnitude higher and anticipate P2P lending to be 10-15% of my entire investment portfolio. I invest solely in D-G notes. Unlike hobo, I do have two defaults with several hundred notes in my portfolio. They bothered me at first but then I realized that it's just the price of business. If there was no risk there would be no return. My rate of return per LendingClub is 19.8%, which is artificially inflated (to make a long story short, they only count interest on currently invested notes) . My actual rate of return is closer to 17.5%.

You are provided fundamentals when you invest in a loan: the FICO score, debt to income ratio, the reported income, etc. Lending Club has a proprietary formula to divide loans based on risk and they letter them A-G. They further stratify the loans into subgrades 1-5. The letter/number/length of loan combo determines the interest rate paid.

Lending Club collects 1% of payments made. I just had a payment on a $35K 60 month loan that I have $25 invested in. My fractional receipt was $0.69; $0.23 was principal and $0.46 was interest. LC took 1 cent (which will be averaged out over the life of the note).

The most important thing when investing in these types of notes is to diversify. According to LC statistics (that they freely provide), approximately 1% of investors with 100 notes have lost money since inception but no investors with >800 notes have. 87% of people with 100 notes made more than 6% and 93+% of people with more than 800 notes made more than 6% returns.

There are risks with these investments and, despite the FolioFn trading platform, the invested notes are fairly illiquid. I would not recommend investing money that you would need in a 3 year horizon... I definitely would not invest money you think you might need in 6-12 months.

The only real way to meet spends using LC is to use a CC to invest money you'd be investing anyway... it's not a useful method to churn cash as they have enacted barriers to prevent this.