One small part of my overall investment portfolio is peer-to-peer loans made through Lending Club. I have found it a great place to earn higher-than-usual returns and also to feel good about helping other people. I would recommend it to anyone who is looking for somewhere to invest their money. *Note: Lending Club does not operate in some states, and you can not invest in their loans if you live in those states.
What Is Lending Club?
Lending Club is an online financial community that connects investors, like me, with borrowers. Borrowers apply for loans through Lending Club. Investors review the borrower’s applications and invest in loans that fit their criteria. Investors have the opportunity to invest as little as $25 in each loan they like. This process cuts out the middleman (the banks) and means lower rates for borrowers and higher rates for investors.
Why Is Lending Club A Good Place For Me To Invest?
More money! Lending Club loans offer a wide variety of interest rates, based upon the credit history of the borrower and the purpose and term of the loan. The interest rates range from 6.03% to 24.89%. Investors receive that excellent interest rate, minus a small service charge.
What About Risk?
Yup, there’s risk. Borrowers can default on loans, which will cut into your profits pretty quickly. While Lending Club can’t predict the future, they do have criteria that borrowers must meet in order to get a loan, including a
- 660 credit score and n
- o late payments within past year.
The investors have the responsibility to look at each borrower’s application and make an informed decision about which loans look safest to them. There are several sorting tool to help find the loans in which you want to invest. I currently have about 150 active loans, and that they are all paying as scheduled. In order to mitigate the risk, Lending Club (and common sense) recommends that you invest a small amount in a wide variety of loans.
Another downside, though not a risk, is that it can take time to build up a portfolio of loans. On any given day, there might be 4 loans in which I am interested. At $100 per day, it would take nearly two months to invest $5000. While the money is sitting in your account, waiting to be invested, it is not earning any interest.
Lending Club is another avenue to consider if you are looking for a place to invest your money. It has worked out well for me so far.
*From Lending Club: To invest in Lending Club Prime Consumer Notes, you must reside in one of the following 28 states and meet that state’s financial suitability conditions: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.
If your state is not listed above, you may be able to trade notes via FOLIOfn’s Note trading platform. At this moment, applicants from District of Columbia, Kansas, Maryland, Ohio, Oregon, and Vermont are not eligible to become trading members with FOLIOfn.
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