Lending Club – no deadbeats yet
Last summer Lending Club offered $50 for signing up for an account and trying out their service. It’s a pretty simple concept – consumers looking for a loan can go directly to investors and skip the middleman – the bank. I liked the concept, and I gladly signed up for $50 free.
I wasn’t really sure to expect. I thought there could definitely be negative selection, as people looking to borrow may be doing so as a last resort (maxed out credit cards and turned down by banks). However, they must submit to a credit check and income verification through the site, so there are plenty of safeguards.
With my $50, I decided to invest in 2 loans for $25 each. Here are the lucky folks I chose…
- “I’m writing requesting for a loan as a down payment on a house. I’m the perfect candidate for a loan because I’m a responsible individual financially and this is evident when you check my credit report. I just qualified for an FHA loan and they need 3% down which I currently don’t have and this is why am looking to borrow money.”
This guy had a 700 credit score and no outstanding delinquencies, so I felt he was a pretty good risk. However, I don’t think he’s making good financial decisions. If you don’t have a measly 3% to put down on a house (banks require 20%), you’re probably not ready to buy. What happens when the furnace goes out or you need a new roof? However, with a good credit track record, I felt that he was worth the risk, especially at a 14% interest rate.
- “This loan will be used to payoff a fairly high interest personal loan that I used to payoff very high interest rate credit cards. All of my credit card accounts are paid in full. I have an excellent payment history on all revolving and installment accounts, always paying on time or early.
My monthly living expenses amount to 18%-22% of my monthly net income.
My job is very stable, having been employed in the IT department of a state university for 22 years.”
This guy had several good things going for him in his loan application. A stable job. 730 FICO score. And the money was going for a fiscally responsible purpose – debt consolidation. The 10% interest loan is probably a better deal than he’d get at a bank, which he’d qualified for anyway, so I decided to make the plunge.
The results so far have been very positive. Both debtors have made all their interest and principal payments. The home buyer’s credit score has actually improved, possibly directly due to the housing purchase, but good news nonetheless.
I would definitely consider investing more money in Lending Club. It’s pretty cool to be a part of the underwriting process, choosing your risk level, and receiving a much higher interest rate than the sub-1% banks are offering. I’ve heard some horror stories, but those were usually by the applications with terrible credit scores.
If you want an invite to lending club with a deposit bonus, leave a comment.