Back in February 2008, I wrote a post titled “Why I Started Lending Money With Prosper And Lending Club” that outlined why I had veered from my savings account mentality into the world of peer-to-peer lending. Basically, I wanted to try to beat the rate that my online bank was offering at the time (which is even lower now – thanks ING) by lending my money directly to people who need to borrow it, skipping the middleman. ING at that point was paying around 3% interest, which wasn’t great, but it was a sure thing and there would not be anyone defaulting on my loan.
With Lending Club, however, there would be a chance that a borrower of my money could default on the payments – but that came with the possible reward of much higher returns on my cash. So I took out a little of my savings and put it into 2 different loans, with one of them having a Grade A credit rating paying 8.07% interest and the other having a Grade E paying 15.45% interest. I figured I could possibly end up with an interest rate between the two of them, which is exactly what happened. For the last 19 months I have been earning a whopping 11.89% interest on my loans – and I couldn’t be happier with the result. Neither loan has ever had a month where a payment was late or not paid, and both are totally up to date and still making their payments. So far, so good – and at 11.89% interest, I am very happy.
I think peer-to-peer lending might be the way to borrow money in the future, shall I ever need to do so. Cut out the bank approvals and help other people make better returns on their money? I am sold on the concept. My friend Matt at Steadfast Finances wrote an interesting article the other day about peer-to-peer investing replacing national currency, which you should check out – it’s a very different concept. For me, I would appreciate anything different than doing things “the old way”, which obviously has completely backfired given our economy and the collapse of Wall Street. Could peer-to-peer by the wave of the future? Who knows…
Either way, I am very happy I started lending money with Lending Club, and I even added some more money to my account today. For people looking to lend money, it’s a chance to make more in interest than your money market does, and for those looking to borrow, it takes the bank middleman out of the equation. It’s a win-win for most everyone. If you start lending with them, they even put $25 in your account for you to start with, which is pretty cool. I was skeptical at first, but I am a believer now after seeing my money make 11.89% interest.