The economy is in the tank, people need money, and it is harder than ever to actually get a loan because of this financial mess we are all in. What is a person to do who legitimately needs a short term loan and can you make money from this situation? Well, peer to peer lending might be the answer and yes, this is another one of the good ways to make money.
Enter peer to peer lending (also called person to person lending) where regular people with money to lend, are able to lend it at attractive rates to people who need the money. Right now if you take your extra cash to the bank and put it in a CD or other comparable vehicle, you might be lucky to get 1%. If that return is not high enough for you the stock market is always an option but in today’s market that is quite a gamble. So, what is a person to do to make decent returns here in 2009.
Lending Club is one of three big peer to peer lending platforms where you can get a much higher return on your money than you can by taking it to the bank. Also, if you need money, you can get it at the Lending Club as well. Of all the ways to make money, this is a relatively new one as sites like this have only been around for a handful of years. Banks have always made their money by lending it out at high rates and now it is your turn to be able to do the same.
Person to person lending works much the same way as it sounds. It is regular people lending money to other regular people. The only thing that is missing is the middle man and because of this, both sides can get better rates. The Lending Club allows lenders and borrowers to come together to work out loans where each party gets a better deal than they could at a bank.
As an example, lets say you need $5,000 to finish a home improvement project like having a new roof installed on your home. If you have a good credit history (greater than 660 FICO) you may qualify for a loan through the Lending Club website. You will be able to see what rates you qualify for and if acceptable, list your loan request on the site explaining in as much detail as you can why you need the loan. Your loan listing will then be reviewed by thousands of potential individual lenders who can choose to loan any part of the $5,000 requested loan amount. In the end, that $5,000 loan may be funded by hundreds of people who all have varying amounts of the loan.
Lending Club does NOT come risk free as any time you loan money to another individual there is some risk it will not be repaid. It is up to each lender to pick and choose the borrowers they feel are the best risks and not lend more money than they feel comfortable losing. The reward for that risk is a higher return on their money than they can get most other places. The interest rate that most loans go off at are between 6.69% and 19.37% with the higher interest rates having more perceived risk.
Never before have people been able to lend money to strangers and get a bank like interest rate as a reward. In these hard times with credit being very difficult to get, Lending Club is predictably doing a lot of business with folks who can’t get traditional loans. They are finding that through this social lending site, they are able to get the money they need after all and often at a great rate. Investors and lenders are finding that this is one of the new ways to make money that could only happen with the Internet. It seems like this is a win win situation for both sides!
Disclaimer: I have not personally loaned any of my money through Lending Club.