The idea of peer-to-peer lending has brought many new opportunities for investors who seek something different from bonds and stocks. In short, as a user of a peer-to-peer lending platform you can become a lender who lends money to individual borrowers or you are a member of “a loan pool” if you want to decrease risk and possible loss. Checking your potential borrower’s credit score helps you make a good decision.
The best quarterback
Lending Club is the biggest player in this market. Here $35,000 is a maximum amount of a loan for a person – with fixed interest rate and for a wide variety of purposes – and $300,000 can go for a business. Lending Club point out that they have strict approval conditions so as to gather the most credible borrowers. According to them, 699 FICO score is the average among their borrowers. Those who apply for a loan receive grades (A-G) which decide on their interest rates that start at 7,34% and end at 25,54% (these are more inviting compared with the average national rate).
Instead of lending all money to one borrower you can diversify the risk of a total loss. In Lending Club you have the option of investing in “notes” – pieces of loans. When you invest $2.500 buying 100 notes costing $25 you lend money to 100 borrowers, and at the same time, you limit your individual loss risk to $25. In case you suddenly need to get out of your investment, you can try to find a buyer for your notes. The problem is that Lending Club cannot guarantee finding a buyer for you, unfortunately. The maximum length of consumer loans is five years and you should be prepared for a commitment for this period of time.
How much do I pay?
When it comes to fees, investors must pay for principal and interest payments they collect. This servicing fee is 1%. The collection fee is 35% of the total collection. In case of necessary litigation, its costs and 30% of fees covering attorney remain on the investor’s side. Investors are not charged with any collection fees if they do not collect any payments. Also the collection fees cannot exceed the amount of money recovered.
More than just one option
Peer-to-peer lending has also other forms, such as professional money managers (banks, insurance companies or private pension funds). They offer partnership in Lending Club investments. Visit Lending Club’s website or contact an investment adviser if you look for some alternatives of peer-to-peer investments in Lending Club.
It is believed that the traditional lending market may be outrun by the peer-to-peer lending or its alternatives. It surely is worth considering, yet still it is not a perfect way of investing for everyone. It involves both high chances for good income and a high level of risk at the same time. It would be advisable to start with a small amount of money, just in case it turns out to be not for you. Still, the prospect of good profit can be really convincing and worth devoting time to learn more about this kind of investments.