Personal Investment -- Peer to Peer lending

Lending Club

The P2P lending (peer to peer lending) has very long history. One person borrows money (personal loan) from another person or persons. After lender and borrower set term and interest rate, borrower receives money. When the term is up, borrower should pay the loan and interests back to the lender. P2P loans are not secured. Lender needs some kind of bonds or personal relationship to against default.

Online P2P lending is a young industry. It started in UK at 2005 by a company called Zopa. Two US companies Prosper and Lending Club opened in 2006. Online P2P lending is originated from traditional P2P with modernized processes.

I found P2P information few months ago through the article"Lending Web Site Gains a Shareholder in Google". So I decided to give it a try and selected Lending Club. Here is my experience of Lending Club as an investor.

How it works:

1. Register your Lending Club account by filling form with your personal information
2. Transfer funding to your account
   • Wire transfer: You can wire your money to your Lending Club account. If your first wire transfer exceeds $1,000, Lending Club will deposit $25 into your Lending Club account to cover those wire fees. Wire transfer fund takes 1 business day to appear on your Lending Club account.
   • Link your bank account: You can provide you bank route number and account to your Lending Club account. The funding can take 4 business days to appear on your Lending Club account.
3. Loan structure
   • Lending Club offered loans from few thousand dollars to $35,000. The terms of loans are 3 years and 5 years.
   • The loans are divided into 7 categories (A – G) based on borrowers’ FICO scores, current incomes, and employment histories etc. as risk facts. Category A loans have the lowest default risk, but paying lower interest rates. Category G loans have the highest default risk, but paying much higher interest rates.
   • Each loan is divided into number of $25 notes. Investors can fund as little as one note ($25) per loan.
4. Invest
   • Investors can purchase loans manually by browse each category of loans and buy the notes.
   • Lending Club also offers prebuilt portfolios based on investors available funds.
   • Lending Club will calculate possible APR rate and possible default rate based on the risk of the loans.
5. Loan review and issue
   • Lending Club list loan requests online to be funded by investors. After a loan request is fully funded, Lending Club will perform final review and decide if the loan will be granted or denied.
   • If the loan is denied, the funding will be returned to investors’ accounts for future investments.
6. Fees and pay back
   • Lending Club charges 0.75% APR as service fee.
   • You will receive monthly pay to your Lending Club account for future investment.

Personal Experience:

I opened my account in late May and invested $5,000. I want to reduce risks and split funds in 187 loans. I also setup email alert to notify me if my account has more than $25, so I can purchase more loans. To learn more: Lending Club
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