How I make money investing in peer to peer lending with Lending Club.
What is Lending Club?
For a borrower, this is a place to get a loan online as opposed to a bank. For an investor, this is an awesome place to make some cash by lending money. It’s a win / win system. Someone has a need for money and the other person is looking to make money by investing in a loan. Lending Club brings these two groups of people together.
How to Get Started
At first I was hesitent to put money in something I was unfamiliar with. I did, what I believe, is the only reason I am doing so well. I read a book about it. A $3 book.
This book walked me through everything I would go through and most importantly it taught me how to set up the filters, which I will get into later.
After reading this book I signed up, added money from my online savings account, and set up my filter. This is by far, in my opinion, the most important thing to do. There are a lot of loans to go through. By setting up the filters correctly, you cut through all the mess, and are left with the best loans available. You obviously don’t want to be loaning money to someone who is unemployed, has a horrible credit score, and loan delinquencies.
The purpose of loan is very important, also. I like to invest in loans for debt consolidation and credit card payoff. These both show some initiative in paying something off. I try to stay away from business loans or home improvement which add a level of risk. If the business fails, will this hinder their ability to pay the loan?
How it Works
You can start off by investing, as little as $25. You do not have to pay the whole loan amount. You diversify by investing with $25 notes in multiple loans. This way, if one loan defaults, then you are not out of more than $25.
The interest rates also vary depending on the risk of the loan. The more risk you are willing to take the better the returns, but also the higher risk of loan default. The other extreme is to only invest in the safest loans, thus less interest made. The problem with this is, there is less room for error. There is a good spot in the middle with a good blend of risk.
I love the way you get paid with lending. It works the same way as a loan from the bank, except in reverse.
Say you invested in a 36 month $25 note. The borrower will pay you the $25 over 36 months plus interest.
This is different than the stock market, because with the stock market you only make money when you sale your stock. With this you are already locked in. You just sit back and wait for the payments.
Since the principle and interest come in every month you can reinvest as the money comes in or withdraw the liquid cash as you would like.
I have been using Lending Club for many years now and overall I am very happy with it. One word of warning, you will get a default every once in a while. For me this has always been absorbed by the interest that I have made on other loans. To be honest it has affected my interest rate on returns very minimally. On a lighter note, I have found this to be very fun. It’s exiting to go through loans and try to decide who is the best to invest in. Just apply basic logic and common sense.
If you are interested, visit LendingClub.com.