- You don’t talk about Lending Club.
- You don’t talk about Lending Club.
- When someone says stop, or goes limp, even if he’s just faking it, the loan is over.
And if this is your first night at Lending Club, you have to fight… er, lend.
The only other one that I’ve actually made a loan on so far is Lending Club. Lending Club works a little bit differently from Prosper. Lending Club’s operating philosophy is that people are less likely to default to members of their “community.” Unlike Prosper – where you are effectively an anonymous lender or borrower – Lending Club assumes that you will be making or taking loans within your community, that can be defined on any one of many different characteristics, like the rate of the loan, the borrower’s FICO score, their debt-to-income ratio, or the number of their past delinquencies – all good information to know. You can also search by funding status, which lets you know how soon you’ll know if the loan is active or not – the lower the percentage, the longer it’s going to take to start receiving payments and interest.
I’ve always approached these sites as a lender, so I can’t speak much to the borrowing experience. Once you’ve signed up as a lender, you can make loans one of two ways: you can either just go through and select a loan yourself (a minimum of $25) or use their LendingMatch(tm) algorithm to select loans for you. I didn’t want to invest the minimum $500 required for a LendingMatch search, so I stuck with finding loans for myself.
Making a loan is pretty simple: you select an individual loan, then click the “Loan” button. After that you click the “Check Out” button, then you confirm the loan. That’s it. Right now I have two loans at 14.02% each – not too shabby, although I don’t have a huge amount of money invested. My peer-to-peer lending tends to be on the hyperaggressive side. I haven’t lent any money I can’t afford to lose (something I would advise everyone to do if investing in P2P lending) and I generally see little point to investing at rates less than what I could make in an S&P index fund (quit snickering – I’m talking about the return over years, not since the beginning of 2008).
When I signed up for Lending Club, I had a few glitches getting started. I wasn’t able to complete the signup process after I did the bank verification; every time I returned to the “start lending” page it dumped me back into the signup process, even though I had completed all of the steps. It was frustrating and didn’t bode well for the site.
I have to say that one of the interesting ways that you learn what a business is really about in our increasingly connected-yet-disconnected web world is to have a problem. I have had troubles with Google and getting in touch with someone from The Don’t Be Evil Company is about as likely as tossing a message in a bottle into the Atlantic and hoping someone in China will answer it. Lending Club, after I told them about my problem, got on it immediately – I received several phone calls and emails and they fixed the problem quickly, even when I stubbornly insisted on using the same email address rather than starting over with a new one. Their quick response makes me trust them a bit more – maybe that’s irrational but it’s nice to know they have humans working there and not just clever human-impersonating software.
You do have to wonder about peer-to-peer lending. I like the idea, and I don’t really see it as particularly risky. Sure, borrowers may try to shine on lenders, but hey, Enron shined on investors. Citigroup and AIG can’t keep their stories straight. But is P2P lending going to grow larger or just stay ghettoized to a few web-savvy lenders and borrowers? I think the number of people who will look to lend could grow, but the growth of borrowers will be critical. Who knows, maybe a recession would be good for P2P lending as people need to turn to alternative sources for cash to stay afloat. Lending Club seems more conservative than Prosper to me. Maybe it will become a great way to fund small businesses, and in fact I think that’s where the future of P2P lending lies, not in debt consolidation. People will probably keep turning to home equity loans to consolidate debt (foolishly, in my opinion) rather than the slightly-higher-rates of P2P lending which are, however, not going to result in losing your house if you fail to pay them. On the other hand, I see a great future for small businesses getting funding through P2P sites like Lending Club. If I needed $10,000 in seed capital, I would go here before I’d go to a bank. Time is of the essence, and banks are not exactly speedy with unsecured loans for business building these days.
I don’t know how it will develop, but I will continue to watch, because it’s an interesting and creative way for everyone who participates to benefit.
Check it out!