Lending Club is a peer-to-peer lending where anyone can borrow certain amounts of money through regular people who have invested on the company. It means that even in the absence of a bank, you can easily get the loan you needed. As long as you can repay the amount on time and you are deemed qualified to get the loan, then you have nothing to worry about. The more interesting part is if you are investing instead of borrowing. Is Lending Club a good investment? Will you risk losing huge amounts of money?
Lending Club investment is more or less like investing on the stock market. Over a period of time, you win some, you lose some. There are a lot of factors that you need to consider before you can compute for your net income. To begin with, you are not the only person investing in Lending Club. For instance, someone needs to borrow $1,000. You can decide how much to lend the person along with other investors who are willing to do the same. There will be an agreement on the interest rate and repayment scheme. Then, the borrower starts to repay the amount at the end of each month. Lending Club disburses the money collected to the investors, but they also get a small fee out of the loan.
The Popularity of Lending Club
One of the reasons why this is a good investment is because of its popularity. Peer-to-peer lending is now becoming a trend due to the debt crisis and global recession that led to many banks to stop lending personal loans. Getting loans from banks has also become more difficult than ever. Therefore, people who are in dire need of money look for other options to get instant money and peer-to-peer lending is the easier way out. Lending Club has been around for quite some time now, so you are assured that this is a legit company.
Small returns
The only down side of Lending Club is that you really can’t expect huge amounts of money to return right away. If you have invested a total of $5,000 a year, you might get around $6,000 to $7,000 in return. You need to deduct payments to Lending Club too. You can even lose money from borrowers who have defaulted. There could also be pending loans that you are yet to collect. The biggest problem is when you are faced with a borrower who extensively lied on the information given and end up not paying anything. Despite the extensive background check done by Lending Club, there is still a possibility that those who wanted to borrow a loan be granted the chance to do so even if they are not capable of repaying the amount borrowed. If this happens, your investment is placed on a huge risk. This is the reason why you need to diversify your investment. You can lend small amounts of money to a lot of borrowers so if someone defaults, it won’t be a huge loss.
Final verdict
To answer your question, “is lending club a good investment?” there really is no definite answer. It is just like investing on stocks. You might win in some instances and lose in some others. You need to be careful on whom you lend your money to. Loans are graded from A-G. If the borrower gets a higher grade, it is equivalent to a good credit rating. You can trust this borrower to repay you. However, you get lower interest rates. On the other hand, if a borrower gets a G, it means that he scored really low after assessment. On the plus side, you can get an interest rate of as much as 24%! This is huge, but totally risky.
Thus, your success or failure depends on your ability to analyze the situation. It is fun too since it allows you to analyze each case and make the best decision. If you are searching for a small but steady investment over the years, then this is the right choice for you. It seems risky in many ways, but all forms of investments are a risk anyway. It is just up to you on how you can minimize the risk and maximize gains.