Peer-to-Peer Lending

I saw this post on FreeMoneyFinance for a chance to win $100 from LendingClub. LendingClub is a peer-to-peer (P2P) or social lending website. It brings together buyers and sellers of notes and the people or small businesses who need the loans. The lenders get a fixed return, while the institution behind the website handles the vetting process, maintenance, and overhead. Prosper is another P2P lending institution and the oldest in the US. Loans are issued to a specific borrower, so if they default, the lender eats it, as they are unsecured. The institutions work with collection agencies to recover as much as possible in those cases. Prosper is accepting new borrowers, but not accepting new lenders. They are in a quiet period and registering with the SEC. LendingClub has already filed with the SEC and reopened for new lenders back in October 2008. Hopefully, they are more closely regulated than the investment banks currently in crisis.

It seems a little puzzling why people would borrow like this. If you are in the top tier of credit rating and income level, you qualify for their lowest rate of 7.37% fixed. Wouldn’t these people have other means to borrow, like 0% credit cards, and have enough savings? I mean the maximum loan they issue is $25,000. That’s nothing for a Wall Street Baller like myself. Sorry, bad joke. Also, the maximum debt-to-income ratio is 25%. This rules me out as a potential borrower, along with a bunch of other people out there. Forget about me qualifying as a lender. You need at least $70k annual income and $70k net worth or have $250k net worth. From My Dashboard, you can see what my net worth is.

For those with lower credit scores, but still above their minimum score of 660, the interest rates increase to the 13-20+% range. Even my broke self talked my lenders down to a maximun rate of 15% on all my credit cards (most of them are 9.99%). The majority of their loans are in the B grade of 10.95%-12.21%. I’ll pass, but I will enter to win $100, so go leave a comment on FreeMoneyFinance for your chance.