Tuesday, June 09, 2009

Just made my first Lending Club peer-to-peer loan investment

I just now made my first investment in a peer-to-peer loan ("note") through Lending Club.  I opened a Lending Club account as an investor (lender) last Wednesday. The initial funding transfer from my bank account (actually my Fidelity brokerage account) completed yesterday.

I am starting with a modest $1,000 initial funding and intend to invest $25 in each peer-to-peer loan (called a note.) That will eventually spread my risk over 40 loans (notes.) After I get at least six months to a year of experience (and depending on my own financial condition) I will consider how much more to invest.

A typical Lending Club loan (note) would be in the $5,000 to $25,000 range, so my little $25 is only a small amount of the risk of default for a given loan (note.)

The standard Lending Club note is for a 3-year term.

I am still a little concerned about the dicey state of the economy and the risk that even people with good jobs today might lose them and default on their debts, so I am currently thinking of investing only a small portion of my funding up front, then a little more over the summer, then some more in the early fall, and maybe the rest as we start to see some economic strengthening and reversal of job losses later in the fall and into early next year. At least that is my initial "plan."

I'll probably invest about $100 to $150 upfront just to get some experience with the whole process. That would be small pieces of four to six loans (notes.)

I'll probably spread my investments over a range of credit risks, just to see how different risk levels perform and to average up to a higher return.

My first investment was for $25 of a $10,000 note intended for credit card refinancing. The loan grade is A5, indicating low-risk. The interest rate will be 9.63%. The borrower works for Best Buy. Their credit score is in the 714-749 range. There are a lot of other credit-related details that Lending Club provides. The note is still "In Funding", indicating that it has another 8 days left in its 14-day funding period. If investors do not buy up the entire note by the end of that period that note will not "close" and our investments will be returned.

For my next loan... I guess I'll get it over with and loan somebody money to buy a motorcycle!

-- Jack Krupansky


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