I’m back from my studying hiatus and ready to dive back into the blogging world. A couple of months ago, I joined Lending Club , a peer to peer lending site. I was hesitant at first but after reading a lot about the site and finding out that it has registered with the SEC, I went ahead and took the plunge. From what I recall, Lending Club is the first peer to peer lending site to register and get approved by the SEC. The competitors are following in its footsteps.
Why I Joined
I was first attracted to Lending Club because of the principle it is based on. People helping people financially. Hearing about the chaos in the banking industry everyday does not make me, as a consumer, excited to get a loan from a major financial institution. And as anyone with a savings account knows, the banks are offering very minimal interest rates to savers. Those former killer online savings accounts are nothing like they used to be.
I’m glad there is a solution where I can invest my money for a great return, but find that it feels like an even better return, because I am helping others achieve their own goals.
Types of Loans
All loans through Lending Club are three year fixed rate loans, which in my opinion is good for planning for both the borrower and the lender. The site uses credit report information to put the borrower in a rating category and subcategory and advertises offering better rates than many banks. These loans are not backed by any asset such as a house or a car and are the bank equivalent to a personal loan.
From what I have seen most borrowers need the loans for repairs around the house, paying off credit card debt, or paying for a big event like a wedding.
Lenders have many options available when contributing funds to one or many loans. I was able to choose a desired return level (13%!) set by the borrower credit categories. These categories are created with the intention of offering more return for an increase in the risk that is undertaken (about 7% – 20%). The site even offers info regarding number and percentage of defaults in any given category, boasting a less than 2% default rate since inception.
One of the more interesting options is the ability to sort borrowers by commonalities. The areas of commonality include hometown, current town, college/university, employers, and other organizations or affiliations. The idea behind making these commonalities known is two fold. It can encourage individuals to lend to others as well as motivate the borrowers from defaulting, knowing the lenders are people just like themselves. This commonality removes the detachment usually felt with loans from big banks.
Lenders also have the option to decide how much to contribute to any one loan, from the minimum of $25 to the full loan amount (usually ranging from 5K to 25K). Some basic information regarding employment and income is shared and lenders have the option to ask borrowers additional information. I have seen this often when someone has a couple of delinquencies on their credit reports.
I think that peer to peer lending is an idea that is still just taking off and will explode as one of many solutions for consumers looking for liquidity options. At this time, Lending Club is offering a bonus for new members looking to invest funds and make loans. E-mail me (egger [at] westegger [dot] com) if you are interested and I can send you an invitation to Lending Club. I don’t get any referral benefits, but you get a monetary sign up bonus.