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Thursday, April 9, 2009

Earn 7% or more with Lending Club

I'm kinda' scared and feel a bit silly...I took a risk and lent someone some money over the internet in order to take a chance on earning 7% or higher. This isn't like me at all! But INGDirect's 1.5% is just not going to get that new pair of shooz and the -25% on my retirement fund means I'll be of the working and stressed out masses even longer than expected (which is, basically, forever).

Several of the frugal bloggers and money bloggers have mentioned the on-line lending companies, where you sort of act like a micro-lender, with the site as the go-between. It's called "Peer Lending." I've read enough about the service to finally give it a shot. I spend $100 on a great night out on the town...why not take a small, calculated risk that might help out a service trying to go fill a need that the financial institutions are missing.

It's pretty simple.

1st - I funded my Lending Club account with $100. That took a couple of days to process through paypal and my credit card. I didn't want to use my debit card just in case the group is shadier than it looks.

2nd - I browsed a list of "notes" available to buy. Individuals are offering 7.5% and up to those who might help them reach a goal. The goals are as varied as purchasing a used car that the individual can't get financing for, to helping someone pay the dentist.

Lending Club does all the background and credit checks, and gives each lender a risk score. Individuals also report credit ratings, annual income, debt to income ratios, and number of delinquent payments in last 3 years. Sometimes Lending Club is able to verify that information. If so, it is noted with an asterik on the form.

3rd - I read backgrounds and profiles on the people I considered lending to. Each borrower gets a pot of money pooled from several lenders. For example, I am one of 1,500 people giving up at least $25 each to a borrower looking to buy a Honda Civic 2002.

4th - once the loan "closes" through Lending Club, I should have interest deposited into my account each month.

I'm not endorsing the process in any way...just reporting on my adventure with it. There are prospectus(es?) to read - and disclaimers to check. Please do your due diligence before trying any of this at home. Hopefully, my adventure with the program will give you information that will reduce your risk with this type of service, help you avoid it altogether, or perhaps even help you find a way to generate more interest income.

What can I say? It's an experiment that just might pay off....

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