M is for Money

A few weeks ago I joined Lending Club as an ‘investor’ looking for new ways to hopefully not lose my money. They are one of several players in the peer to peer lending market, which try to match borrowers with lenders in a mutually beneficial relationship. Borrowers get better terms than they get through traditional lenders and investors get higher returns on their money. It’s not without risks, hence my small initial investment.

Finding Loans to Fund

I had $100 in my account for funding loans. The minimum investment per loan is $25 so to spread out my risk I invested $25 each with 4 different borrowers. Finding your borrowers is a big part of the fun with Lending Club. They allow you to filter out borrowers based on several measures of credit-worthiness: debt to income ratio, credit score and delinquencies. You can also sort by the rate on the loan. You are given basic info on what the loan is for and how much the borrower is seeking along with their employment and income stats. Most borrowers were looking to consolidate debt, pay for a wedding or buy a motorcycle. Then there was the girl looking for money for a boob job, I guess she hasn’t heard of Care Credit yet (no I didn’t fund her loan). You can also ask the borrower questions about themselves and the loan. I found these little snapshots into people’s lives very compelling.

Low(er) Risk

I decided to fund loans across the lowest rate/risk spectrum, I excluded anyone with a poor credit score or recent delinquencies. This removed the highest rate loans, yeah I guess I’m risk averse right now. In general I looked for people with stable employment, low(ish) debt and a need I identified with. The weighted average interest rate for my portfolio is ~10.5%, well below the maximum 19%. My money is going to someone looking to pay off high interest debt, a family vacation, a wedding and to a guy wanting a motorcycle for weekend rides. Cool.

The Lending Club Experience

My 4 loans are still "in-funding," meaning the borrower has not received all of the funds they are seeking. If the borrower receives less than the full amount they can either take what they get, relist the loan or opt not to take the loan out. I’ll simply have to wait and see. Lending Club will handle everything from collecting the payments to distributing my share back into my account each month.

Right now I’m simply testing the waters, as with any investing I’m using money that I can afford to lose. I would gamble more but I’m trying to build up a bigger cash reserve this year. That money will sit safely in a savings account. Lending Club is definitely tempting me though. ING lowered the savings rate to 1.5% a few days ago, at this rate I’ll have to pay them soon. It’s not just the chance for better returns, I felt a little satisfaction from funding people’s dreams.


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