An alternative to Bank CDs (certificates of deposit)
Peer to peer lending is a relatively new concept for most conservative investors, however even the most conservative of investors should take a second look!
Lending Club , whom Harvard Business Review awarded the “Break Through Business Idea of 2009,” has rewarded investors with annual returns of 9.65% APY since it’s inception in 2007. You may customize your deposit loans based on your investing style - conservative, moderate or aggressive.
Interest rates for Lending Club borrowers start at around 7.5%. Compare that to a typical credit card APR of between 11% and 25%.
From an investor stand-point, the obvious attraction is the interest rate you will receive. Since Lending Club’s beginning, investors have earned an average return of 9.65% APY.
Also keep in mind it only takes $100 to open an account with Lending Club, therefor even skeptical investors can give it a shot without risking too much.
Here are some statistics to monitor if you are a potential investor:
A) Lending Club’s approved loan applications sit at roughly 14% (only prime borrows approved)
B) Extremely low default rate - less than 3% after 18 months
C) Lending Club typically offers a loan amount of 1% above the investors returns (investor receives 7% APY, borrower pays 8% APR)
See reader comments below.
February 24th, 2009 at 4:24 pm
I’ve used this service before. It’s a way better option than investing with giant, inefficient banks. The whole concept of micro-finance needs to be discussed more in the main stream media. You get to help people out financially and reap 8% - 12% gains in the short term while you’re doing it.
Good post, I hope more financial media outlets discuss this in the future.
February 24th, 2009 at 4:55 pm
Yea I use it as well. IMO banks can’t hold a candle to peer to peer investing. Plus banks are shit right now.
February 24th, 2009 at 5:33 pm
Do you personally get to choose who you loan to? Can I review their credit score along with other vital stats before I decide if I want to loan?
February 25th, 2009 at 1:09 am
Randal,
No they do that for you. They use strick filters and only loan to people with prime credit. I have had no problems.
February 25th, 2009 at 9:55 am
this isn’t helping people if they are required to pay 13% + APR on a loan even if their credit is SUPERERB
February 25th, 2009 at 10:21 am
It could be a win win, how much would someone get a business loan through a bank for with excellent credit? 9% 10% 13%???
February 25th, 2009 at 12:42 pm
You’d be lucky to get a business loan for those rates these days. Micro-financial companies do a good job at cutting out the overheard that most banks have.
February 25th, 2009 at 2:01 pm
If you have a 680+ credit score and have been in business for 2+ years, I’ve seen business loans advertised for under 5% APR.
February 26th, 2009 at 7:04 am
Great to see this concept being mentioned more nowadays. I’ve been a lender for sometime, and after defaults, I’m still making 7-8% returns.
My recommendation is to start slow ($500 will get you into 20 loans) and learn from picking those loans, then once you understand how it works, move your long term savings into it (money you would have tied up in CDs anyway).
February 26th, 2009 at 4:31 pm
[...] I’m not the only one starting to see the value of Lending Club as a replacement for CD’s and online savings accounts. BankVibe sees social lending as an alternative to to bank CD’s. [...]
March 6th, 2009 at 9:42 pm
yep people with prime credit are desperate to use peer to peer lending lol
March 25th, 2009 at 6:51 pm
I guess I’m not very observant. I opened an account with Lending Club with $1,000 and began buying notes. When nothing went through, I re-read everything on their website and discovered I live in one of the majority of states in which the notes can’t be bought. I closed my account yesterday. It’s only an option for certain people, depending on where you live. I feel shortchanged, but will probably survive it. Que sera?
April 9th, 2009 at 10:11 am
I have been with lending club now for 6 months and am set to make around 11% APY this year. I am diversified into a bunch of different borrowers and am going after a higher return. No defaults yet, but even if I had a few it would only knock my overall earnings down to 9.5 - 10% APY
Cool savings product, two thumbs up!
April 26th, 2009 at 7:12 am
But isn’t P2P lending a little too risky. Some lenders show that their total returns are lower than comparable no risk CD investments.
June 2nd, 2009 at 3:31 am
Lending Club won’t let everyone invest. It’s based on how much income you earn, your total net worth, and where you live. I find that to be ridiculous!