Lending clubs bring investors and borrowers together to satisfy both parties’ financial needs by offering a secure, legal and efficient lending services. Those wishing to take more control of their investments can lend money to borrowers, and borrowers are freed from the fuss and fees of bank loans’ policies. After the stock market crashed in late 2008, many people began to distrust the stock market and turned to peer-to-peer lending for personal loans, loan consolidation and no fee IRA accounts. It’s simple and basic:
For Investors – sign up as a Lending Club investor:
- Deposit funds (via ACH, wire, check or PayPal).
- Easily build a portfolio of loans based on your criteria.
- Receive monthly payments of principal and interest. There are no maintenance fees.
For Borrowers – sign up as a Lending Club borrower
- Get quick approval on a fixed-rate, 3-year loan from $1,000 to $25,000.
- Once approved, most loans fund in less than 2 weeks.
- Pay interest and principal monthly automatically from your bank account.
The advantages of lending clubs for lenders/investors are taking control of their money and choosing a “guaranteed” interest rate based on risk level. For borrowers, the advantage is an unlimited pool of loans to choose from with hundreds of interest rate choices that you’d never find at a bank, especially with low credit scores. These are some of the questions borrowers should have in mind when researching a lending club:
- Who is lending the money?
- What kind of interest rate can I get and how much are fees?
- How long will it take?
- Is this a better alternative to debt repayment services?
- Can I prepay the loan early without penalty?
The disadvantages of this program for investors is of course the risk factor; people sometimes don’t repay the loan. Although it can be rewarding for lenders and borrowers to make financial milestones with this program, another potential con is the damage it does to relationships between the lenders and borrowers if the loan is not repaid. For the borrower, the cons can be many for borrowing funds from a source that has no regulations in place. The most important one: no cap on interest rates.
Doing your research and going into and lending club program with open eyes is your best bet for a rewarding experience–for lenders and borrowers. Lending Club has attracted many types of investors, from professional fixed income investors, like family offices and insurance companies to individuals saving for retirement with accounts ranging up to millions of dollars.