RepublicBuy.com

photo credit: Alan Nakkash

If you were thinking of investing in peer to peer loans and were scared away by the commitments, Lending Club’s trading platform has just added some liquidity.

Investors in peer to peer loans like it for several reasons. One is they could be helping someone. The borrower might need funding to start a business or pay for school. Second is the often the nice return investors see on their money, with many loans earning above 10%.

Certain investors liked the idea, but stayed away for a couple different reasons. One major reason is once you entered into a peer to peer loan you were locked in for the duration of the loan. With most loans being three years, peer to peer loans were not considered a liquid asset. If times changed and you needed access to money, your peer to peer loan was not the place to look.

Today, this might be different and has to do with the major changes to the industry in the last year. The SEC has stepped in and stated that issuing peer to peer loans without proper registration is illegal. This effectively shut down the industry and has done so for some time. Banks that want to open back up have to fill out the appropriate paper work with the SEC before issuing any more peer to peer loans. For those banks that do register, their peer to peer loans become securities and are tradable.

Today, Lending Club is one of the first to complete the registration and back open issuing loans. They have also added a trading section to their website. There, visitors will find it is being managed by Folio a member of Financial Industry Regulatory Authority (FINRA). This is a huge securities regulation firm that clients include the NASDAQ and ASE.

This addition has resolved the problem of liquidity. Read the rest of this entry »

photo credit: wsilver

Person-to-Person lending (also known as Peer-to-Peer or P2P) is fast becoming an attractive way for borrowers and lenders to connect directly. It is like the EBay of the banking world. In the past, you would deposit your funds at the bank and depending on the amount and term, the bank would pay you interest. Current certificate of deposit rates range from 3.50% to 5.00% APY. Basically, the bank then makes loans with your funds and their income is based on the spread between your rate and the loan rate. Well, why let the bank have all of the fun? Now, you can lend direct and earn more interest.

There are three main services: Prosper.com, LendingClub.com, and Zopa.com. Prosper gives you plenty of details such as the credit score, Debt-to-income ratio, etc., so you can make informed lending decisions. Prosper.com allows the lender to seek additional details about the borrower, although the borrower doesn’t have to respond. Of course, then the lender doesn’t have to lend to them. Many lenders spread out their funds in $50 to $100 increments to minimize overall risk. Looking at data from Prosper (6/1/06 to 4/21/08), average rate of return for AA borrowers is 6.64%. Some people will sprinkle in some lower quality loans to try to bring the return up. Your funds aren’t guaranteed, however. With Prosper you can get started with $50.00. Certainly not much to risk, to get your feet wet. Read the rest of this entry »

photo credit: norrelb

With any investment or loan there needs to be an interest rate charged. Lending Club uses a formula that takes into account several factors, but it really begins with the assigning of a loan grade.

The first step in getting any peer to peer loan on Lending Club is borrowers must apply for a loan. Upon this request, Lending Club begins to evaluate the potential borrowers’ credit standing. This information is taken and used to assign the borrower a loan grade. These grades range from A to G with A being the highest and G the lowest. To further narrow down grades, each letter grade has sub classes. These are numbered from 1 to 5 with 1 as the highest. These loan grades will then be used in every part of the Lending Clubs formula for calculating interest rates.

The formula is made up of two distinct parts. They are the based rate and the adjustment for risk and volatility. The sum of these equals the interest rate charged. Read the rest of this entry »

photo credit: The Digital Movement

For individuals seeking a loan for the reasons of debt consolidation, auto loan, student loan, small business loan or any other personal loan, there is a new option of funding through peer to peer lending. This option is relativity new and has become a completely separate industry. It is growing at a fast pace and for many people find it services a need not easy filled by other options.

The idea is based in person to person lending and is much like lending family members or a friend money. The bank involved acts to connect individuals who want to engage in lending or borrowing. For the borrowers, the bank helps find lenders. For the lenders, it does all the due diligence on borrowers such as a credit check and handles collection of payment. The credit checks have the purpose to reduce risk to the individual lenders and assign a max amount the borrower can get and sometimes the interest rate on a loan. Read the rest of this entry »