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June 14, 2012

Lending Club Review – How To Invest In Peer To Peer Lending

This is one of the easiest ways I found to invest money AND has a pretty good return!  What i’m talking about is peer to peer lending.  In a nutshell, it is loaning out your money to people and collecting interest on your money.  You finally get to become a loan shark!

What is Lending Club

Lending Club is the peer to peer lending service I use.  There are 2 sides to this business.  One side is the investors who can invest their money to get loaned out and get a decent return.  The word “investing” implies nothing is guaranteed but the average return you’ll get definitely beats out saving accounts, CD’s, and best of all inflation.  The other side of Lending Club is applying for a loan.  The interest on your loans will be much better than taking money out of your credit cards.

How Investing Works

Investing in lending club gives a pretty good return compared to a lot of simple options, where you just let your money sit.  Just like all bank interest rates, the return on your investment are subject to change like every day, but here’s an idea of the current rates as of this writing.

  • Savings: 0.1% – 0.8%
  • 1 Year CD: 1%
  • 3 Year CD: 1.5%
  • Lending Club: 5% – 13%
  • Inflation: ~ -3%

When someone applies for a loan at Lending Club, let’s say for $1000, the loan amount is broken up into 40 $25 chunks.  Each $25 chunk is called a “note”.  Investors decide for each applicant how many notes they want to loan out to.  This way you can easily diversify your investment over a lot of loans, therefore minimizing variance in the potential loan defaults.  Lending Club will assign grades A – G to each loan and you can specify how you want to distribute your money based upon this information.  A higher grade (A) will have the lowest default percentage, yet pays the lower interest.

If you would like to sign up for Lending Club click this link for a $100 BONUS if you invest $2500 or more!

 

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