Lend You My Money

Inspired by this Bloomberg article, I’ve decided to give peer-to-peer lending a try. For those who don’t know, peer-to-peer lending connects borrowers with investors who lend money at a lower interest rates, allowing people to bypass financial institutions.

Lending-Club-NYSEIf you think about it, peer-to-peer lending is a great tool for middle-class to help other middle-class households (or upper-middle helping others since investors are required to have a above average income or at least $200,000 – $250,000 in savings).  Anyway, it’s a win-win situation. You cut out the middle man. The borrower can use the money to fund anything from medical procedures to loan consolidations and benefits from a lower interest rate, especially if they have good credit. A regular person has the opportunity to make money as a lender if the borrower does not default on the loan.

I figure I could start small ($2,000) and consider it “fun” money with a good chance to make more than the measly 1% interest from my savings account.

There are two ways to invest — automatic or manual. Automatic is easier but I want to try my hand at manually selecting loans to finance.  Lending Club (and Prosper) gives each loan a grade based on the borrower’s credit score and other indicators of credit risk from their credit report and loan application. All loans have either a 36- or 60-month term, with fixed interest rates and equal payments.

I’m exposing my naivete when I say that I did very little research before signing up for Lending Club.  Maybe I should have read this article first? For example, I thought there would be a lot more information about the borrower and their needs, sort of like a Go Fund Me Page with pictures and back story. I’m also not sure how taxes will affect my returns.

It will take a while to see if this type of investing will pay off but it’s an interesting gamble.

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3 thoughts on “Lend You My Money

  1. I always like to read about people’s experience with Prosper or LC. I know many in the dividend blogging community diversify their passive income stream with these lending businesses. For now, I’ll watch from the sideline and see the results from other people as I am 100% focused on dividend income for now. Still, it doesn’t hurt to diversify income streams. Thanks for sharing.

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      • Well you can follow many real world dividend portfolios online. I show my real world portfolio plus dividend income received from it on my blog plus there are dozens of others that do the same on their blogs too. It’s a good place to start, ask questions and learn.

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