Planning for retirement sure isn’t what it used to be. Nearly every month as I look over our investment account statements, I wonder if that money is going to be there in thirty years. It feels like phantom currency until I can get my grubby little hands on it and use it to pay my bills. But I’m grateful, because we took a big hit when the market dropped in 2001, when my husband and I were both still young enough to learn about the value of diversification. Since then I’ve paid attention to investment opportunities that may offer something new, whether conservative or risky, to consider adding to our portfolio.
My understanding of peer-to-peer lending has been limited to Kickstarter and YouCaring.com, which don’t really count as investments since you’re essentially donating with only a promise of karmic return. (Or maybe a cool laser lamp that shows up two years after you’ve forgotten you Kickstarted it.) But sites like Lending Club and Prosper actually do provide you and I – common working Joes– the chance to channel our inner Mark Cuban and play armchair Shark Tank.
The way it works is that individuals apply to an intermediary like Lending Club or Prosper for a personal loan, for all the reasons they would take a loan from a conventional bank. Although the intermediary’s claim they only approve ten to twenty percent of their borrower applications, peer lending sites have gained a reputation as a place to go when conventional banks turn a borrower down. The loans carry an interest payment which varies according to how credit-worthy the site determines the borrower. There’s no fee for early payoff, and the founders of peer lending sites believe that although no personal information is exchanges, knowing individuals are behind the loans makes borrowers more accountable to the lenders.
Interested investors can sign up with the service and then have the ability to be a part of crowdfunding someone’s loan. The site takes a small amount, usually one or two percent, and the rest goes back to the lenders as investment income.
Until now, peer lending has been limited to personal loans but Lending Club just announced an expansion into business loans. Loan sizes will start between $15,000 and $100,000 with fixed interest rates just under six percent. The move into small business loans will put Lending Club into a unique niche between its current competition with personal loan sites and those that exclusively lend to businesses, like CAN Capital and OnDeck.
The whole space of Internet-based lending is a growing market and something to watch if you’re thinking of looking at alternate investment opportunities. For now, both motivated borrowers and curious investors can still get in on the ground floor of some of these peer-lending structures.
Edited by Alisen Downey