Wow, here’s an interesting promotion from person-to-person lender Lending Club. They are currently offering a 5% cash bonus if you lend $5,000 or more by February 3, 2008 for both new and existing lenders on top of their $25/$50 sign-up bonus. Here are the details from their announcement:
You will qualify for the bonus by lending $5,000 or more to borrowers between December 14th, 2007 and February 3rd, 2008 (at 11:59PM Pacific time). Your bonus will be 5% of the amount you lend.
For example, if you lend $7,500 Lending Club will credit your Lending Club account with $7,500 * 5% or $375. Funds count as lent once a portfolio (or portfolios) is submitted during the aforementioned eligibility period. The loans do not have to be issued by February 3rd to qualify.
We will notify you of the amount of your bonus by the end of day, Friday, February 8th, 2008, and your account will be credited with your lending bonus by Friday, February 15th, 2008. No special sign-up or tracking is required ? we will run reports on the system to determine bonuses. Feel free to email us at lender.offer@lendingclub.com to ask about your bonus.
[…] Lenders can each earn a maximum payout of $20,000 (if they lend $400,000).
A 5% bonus definitely grabbed my interest again after making a few initial test loans. If you haven’t already, check out my LendingClub review to learn more about their setup for person-to-person lending.
At first I got all excited since banks are only paying 5% interest themselves, but then I remembered that LendingClub loans are spread out over 3 years, so it’s not like you are getting a 5% interest bonus each year (that would be sweet!). Instead, 5% spread out over 3 years is like adding roughly an additional 1.65% annual interest to the existing rate set by LendingClub. (Actually, since the 5% is given upfront, it would actually boost your returns even more.) But remember, these are unsecured loans similar to credit cards, and there is a risk of principal loss. Is that cushion worth putting in $5,000 in?
So far all of my existing loans with LendingClub are rated a safe A3-A4 (7.75 to 8.07%). Given that their minimum allowable credit score is 640, and their credit grades run all the way from A1, A2, A3 to G3, G4, G5, I would estimate that such people have credit scores well over 700 as well as other positive criteria like a reasonable debt-to-income ratio. Therefore, I would love so see my return increase to a 9.4 to 10.72% return on high-quality loans. With $5,000 available to spread across 200 loans ($25 each), that would also smooth out the default risk from a few bad loans.
Lending $5,000 for 3 years is a lot of money, but this is the best person-to-person lending deal I’ve found. Hmm… very tempting!
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Good luck slogging through LendingClub’s loan requests.
Maybe Prosper’s extensive search criteria and standing orders has spoiled me, but LendingClub offers very little help to searching lenders, and none for searching based on inquiries, delinquencies, public records, etc.
I really doubt that you could find 200 suitable loans on a month starting now. I mean, unless you just wanted to trust LendingClubs vetting and put $25 in everything that comes along between now and then.
The LendingMatch service doesn’t cut it for discriminating lenders.
I’ve sent LendingClub an email with suggestions … but to sum it up, they just need to visit Prosper’s search tool, and copy it.
giving out $5000 unsecured loans is spelling TROUBLE!
Even credit card companies only give out between $300 to $1000 to first time credit card applicants.
very tempting indeed. So far I have only used prosper but with incentives like this lendingclub is definately trying to get themselves on the radar.
I am very wary of these type of personal loans. I would curious to hear about some lending stories, particularly ones that exceeded or flopped badly.
-Raymond
I have loaned a little bit of money using LendingClub and am pretty satisfied with how it’s gone. However, I’m confused on when capital gains are realized. Are they realized each month or only after you’ve received more than you started with?
It’s not $5000 to a single borrower! You can split the $5000 across 200 borrowers ($25 each) if you want. The risk of all 200 borrowers defaulting is very low.
Do you have any good links to money/ personal finance forums?
One clarification – the five percent bonus is not spread over three years. The bonus will be paid as a lump sum in February, so you get the five percent right up front. That has a very nice impact on your expected portfolio yield. Try this in excel: =RATE(Number_of_Payments,-Monthly_Payment,Loan_Amount*0.95)*12
It is like getting 5% of your principal back right away (everything will be paid in February), so you are getting a 100% monthly payment with only 95% principal.
It seems to me that there is a way to game the system. Jonathan, you can have your wife as the borrower. She would offer a super low rate, close to zero. Then you lend her the money on Lending Club. Minus the fees as a borrower, you shoud still come out ahead.
I have no problem with you trying to get referral money by pimping prosper and Lending Club. However, it seems like the money network is over selling these two risky ventures for that aim as I’m seeing blog posts on them left and right lately.
A better way to make around a 20 percent return on investment is to join your companies stock purchase plan. You typically get a 15 percent discount on your purchases which equals an automatic 15 percent return on investment. Then typically you get the lowest share price between the first day of offering and the last. Say the first day is 58 dollars a share and six months later on the last it is 68. I get a 15 percent discount and all my shares are bought at 58 dollars and sold at 68.
The only risk you have is an enron deal but that is much less then one of these loans and if your company tanks you will have more things to worry about then that anyway.
These types of investments should be at the bottom of your list. Frankly it is not on my list at all but there is nothing wrong with using the referral link and getting your twenty five bucks.
JB – From their FAQ: Lenders receive monthly income from their portfolios which would be treated as ordinary income. This income is composed of interest and occasional fees (if borrowers are late). We will send you a 1099 for the interest and fee earnings from each calendar year.
I’d say it’s realized a little each month (the component that is interest/fees.)
xmasy – As DM said, you can lend as little as $25 per person. I’m not sure if the LendingMatch service does $25 per person, though.
MBB – I’m sure defaults will happen, the question is at what rate. Using Prosper’s ~2 year history of AA-A loans as a comparison tool, it shouldn’t be that bad as long as you diversify.
Patrick – Using your formula with my current loan info, I get roughly 7.7% before, and 11.2% after the bonus, 3.5% difference. Is it really that much? Hmm.
Cheapster – You’re comparing apples and oranges. Sure, it would be nice to get a free return on a company’s ESPP, it would also be nice to get a 100% 401k match on 15% of my salary, or free stock options. Alas, I have none of those job perks. This investment should be compared with those readily available to everyone, and would be most like a bond.
Jimmy – You can’t set the rate on LendingClub, but I’m sure they have ways to detect that type of funkiness when only 1 person funds the whole loan 🙂
Jonathan- I would say they are apples to apples as both are investment ventures which include risk. Yes these are available to anyone but you would be surprised how many companies offer stock purchase plans.
I simply wanted to put forward the fact that they are a far superior investment to the readers before they ran off and joined prosper or Lending Club.
Check with your company and take advantage if you can. If they do not offer them then save your money in a high yield savings account and wait for housing to bottom out. Then use that money to invest in real estate.
There are so many better options then these unproven ventures but as I said before there is nothing wrong with following Jonathan’s referral link and getting your 25 bucks. Jonathan put up your prosper referral as well so readers can get 50 bucks and you can make some cabbage.
🙂
While it is unlikely that all 200 $25 loans will default it will only take a few to cause the free money bonus seem like a bait and switch. I’ve experienced two AA rated defaults on loans on prosper that effectively wiped-out 2007 earnings.
I’m unconvinced that LendingClub and Prosper reporting bad loans on your credit report really concern some people (who may be setting up shell identities to get a loan then default).
These loans are unsecured and you have NO recourse if there is a loss and the tax treatment for bad loans is very fuzzy.
Lender beware.
Ok, is there anyone actually borrow from this landing club before? I’m more interested in that aspect.
please combine my current one to previous comment –
I don’t quite understand this concept. Say lending club was able to land cheap, low interest rate compare with credit cards, but were able to give higher yield to investors. That doesn’t make sense to me. How do you invest something get 12% interest in return while the borrowers only borrow it for 7%? Wasn’t it has to be the borrowers need to borrow it at at least equal or higher interest rate in order for you to make a profit?
arz – Lending Club and Prosper.com are both player in direct person-to-person (P2P) lending. So I lend someone $50, and they pay me interest. LendingClub gets a cut of the interest for themselves.
A credit card company or bank uses other people’s money do this. They pay some low interest in a bank account to1 person, and then they take that money and lend it out to a 2nd person at additional risk for additional (hopefully) return. Essentially they take the risk, and reap any reward.
Direct P2P lending is basically cutting out the middleman of the bank/credit card issuer, or at least reducing their cut. Now an individual can take on additional risk for possibly higher return. Prosper has been around for a few years now. You can see my Prosper review for some info on another example of P2P lending.
Jonathan, read through the review of Prosper.com now I kinda understand it. It’s a very interesting concept. But I wonder if the model will really energize the Web 2.0 simply because the possibility of higher ROIs. As you mentioned in the review, the risks made it less attractive after all.
Now, how about similar Web2.0 investment ideas that mixed with a flavor of humanitarianism? Things like Microcredit movement that you loan small amount to poor folks in 3rd world and get a decent return on those? I just saw this site owned by eBay called MicroPlace.com. Can you run a review on that?
Here is a link to my Kiva review, which is similar to Microplace but doesn’t give you any interest. I have loans out there was well as LendingClub and Prosper.
I consider my Kiva loans to be charity/doing good as opposed to a for-profit venture though. Microplace does charge a little interest, but is not really a competitive for-profit investment either.