Social lending is the process of enabling people to lend directly to and borrow directly from other people without using a bank. It really is a genius idea and one I wish I had thought of! Lending Club was one of the first to get in this game, and after a quick filing and reorg with the SEC, they are back and ready to help you borrow and lend money. Now they offer SEC registered notes to credit worthy borrowers by giving returns to investors (like me) with returns stated from 6.69-19.37%. That’s pretty good with the economy the way that it is! (Here is a great story at NPR on how Lending Club works out for both borrowers and lenders alike in this tight credit market.)
For lenders (investors), returns can vary by borrower risk, but you can mitigate that risk by choosing borrowers with higher credit scores or a lower debt to income ratio – at the expense of higher returns. You really can set your own risk level that you are comfortable with.
For borrowers, interest rates start at 7.88%, which is a lot lower than many people are currently paying on their debts. Your credit score, payment history, income level, reason for your debt, and lender loan fullfillment all work to determine your interest rate.
I joined Lending Club back in the day and I still have money in my account that is slowly being repaid by borrowers. I am currently earning 11.76% on my money there, which is significantly more than I could earn in a savings account and/or the current stock market. And after all this time, I have not had one missed payment from any of my borrowers. It really is a great system that I plan on investing more money in after the New Year. Direct peer to peer lending is definitely going to grow as more banks cut back on their own loans. If you want to sign up to lend or borrow, you can do so right here.