I did some amortization calculations--on the presupposition that most defaults occur during the first 10 months. I am using the example of a borrower who is borrowing a $20,000 loan rated at grade C1:

https://www.lendingclub.com/public/rates-and-fees.action (In the interest of simplicity, I did not take into account the fees charged by LC.)

(A) For a $20,000 C1 36-month loan at 17.32%, the monthly payment would be $716.24. And 10 months' cumulative payment would be $7162.4, which would be 35.81% of the principal invested. If the borrower defaults on the 11th month, the investor would lose 64.19% of the capital.

If the borrower does not default and makes every single payment, the investor would receive $5784.64 worth of interest over the life of the loan. This means that the investor would have a total cumulative return of 28.92% ($5784.64/$20,000) over a period of 3 years.

(B) For the $20,000 C1 60-month loan at 16%, the monthly payment would be $486.36. And 10 months' cumulative payment would be $4863.6, which would be 24.32% of the principal invested. If the borrower defaults on the 11th month, the investor would lose 75.68% of the capital.

If the borrower does not default and makes every single payment, the investor would receive $9181.60 worth of interest over the life of the loan. This means that the investor would have a total cumulative return of 45.91% ($9181.6/$20,000) over a period of 5 years.

The question then is whether for 60-month loans, the higher returns for the longer loan term outweigh the risk of greater loss of capital (as compared to 36-month loans) should the borrower default during the first 10 months.

I hope this helps. (IMHO, one should have a good balance of 36- and 60-month loans.)