Last Tuesday I wrote a post about getting a low interest loan from Lending Club. However, on the flip side you can be a lender and make a much higher return on your money than any bank can currently pay; even with a CD. This post is about becoming a lender or investor.
Lending Club is a social lending network that brings together investors and creditworthy borrowers to lend money that cuts out the middle man; traditional banks. The process is sometimes referred to Peer-to-Peer lending (P2P). Lending Club takes a small 1% commission from lenders to conduct busines. Borrowers pay a processing fee depending on their creditworthiness which range from 0.75% to 3.5% of the loan value.
Lending Club can afford to do this because they have very low overhead by offering their service via the Internet with an automated system. They have no brick and mortar locations, ATM machines, many employees, etc., that a typical bank has.
There is risk with lending your money to individuals; however, Lending Club does a very good job of qualifying good borrowers based on their credit score (minimum of 660 required), debt-to-income ratio (excluding mortgage) below 25% and credit history that shows borrowers are responsible.
Lending Club accepts 1 out of every 10 people who apply for a loan. Interest rates are determined by risk. Borrowers that are ranked as low risk can borrow at lower interest rates, while borrowers that are ranked as higher risk will pay a higher interest rate. So lenders can get a higher interest rate if they are willing to take on higher risk loans. Loan requests are attributed to Lending Club grade ranging from A1 to G5. See screen shot below.
To minimize risk, lenders can find borrows based on credit scores, debt-to-income ratio, delinquencies (last 2 years), and funding status. See screen shot below.
Loans are 3 years, however, you can sell your loan at any point and according to Lending Club it normally takes 2 and ½ day to sell your loan.
Lending Club also allows you to easy reinvest your returns based on your cash available and your desired interest rate. See screen shot below
Yesterday Lending Club had a Webinar (presentation via the Web) and stated that over the last 2 years Lending Club has had much higher returns when compared to 1-3 Year Treasuries, iBoxx High Yield Corporate Bond Fund, NASDAQ and S-And-P 500. See slide below.
I recently opened an account with Lending Club and hope to get some of these nice returns! For more information visit Lending Club.