Wednesday, June 03, 2009

Opened a Lending Club account to be a peer-to-peer lender

I just finished opening a Lending Club account as an investor (lender.) This online Web site supports what is called peer-to-peer lending. It lets people like me who have extra money to lend to... other people like me who need money. As the web site says:

Lending Club is a social lending network that brings together investors and creditworthy borrowers to offer value beyond traditional banks.

Borrowers with good credit can get personal loans from $1,000 to $25,000 at interest rates that are often significantly better than rates from conventional sources.

For lenders, money invested goes immediately to Lending Club's approved borrower members. Most lender members spread their investment across tens or hundreds of qualified borrowers. Notes (that correspond to specific borrower loans) are offered only by means of a prospectus.

The next step is to complete the initial funding of my account so that I can start matking loans. I initiated the transfer of funds this morning, but it may not complete until next Tuesday.

My expectation is that I will be able to make some initial loans in a week.

I am starting out with $1,000. I still need to do some more reading and strategizing, but I expect that I will spread my risk by only contributing $25 to each loan. That would give me 40 loans initially. Also, I may only commit half or even a third of my money at the beginning and wait a few months to see how things play out.

A typical loan might be in the $5,000 to $15,000 range with an interest rate in the 9% to 13% range, based on the grade of the loan.

A lot of credit background information is available for each "note" (loan), including income and credit score range and loan "grade", so a decision can be made based on verified facts and risk.

Unlike Kiva which is great as a non-profit charity for helping the working poor around the world, Lending Club actually permits me to make a decent profit from my lending.

I do have a fair amount of concern about lending in the current economic climate. Even if somebody has a great job today, they might lose it by the end of the day. I might in fact decide to defer most of my lending until later in the summer just to minimize the chance of lending too much to tomorrow's unemployed.

-- Jack Krupansky

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