Poorer Than You » Peer-to-Peer Lending

Net Worth Update: November 2012

Stephanie — Wed, 05 Dec 2012 12:05:00 +0000

I’ve been testing out some new money tactics, with the goal of getting my net worth up to $0 by September 2014. But November, the month of a big charity event and the lead-up to Christmas, is a tough place to start. How am I doing?

Change: +$379 or +1.76%

Upwards! But not upwards “enough” for my taste. To hit $0 in net worth by September 2012, I need to average $1,000/month in gains. And I came up more than $600 short of that this month – meaning I’ll have to make up that $600 along the way, in addition to hitting $1,000 or so in gains every month going forward.

But of course, I’m just starting out on this new goal, so it doesn’t help to be too hard on myself. I’m still laying the ground work for two years of steady gains.

End of the Year = Charity Time!

I dipped into my Charity savings account in order to donate to Desert Bus, the largest of the charity events that I participate in each year. Desert Bus is actually the reason I started keeping a Charity savings account (with $30/month automatic deposits).

Speaking of charity fundraisers, I’ll be running one in the month of December! You can check out my new charity blog, the fundraiser’s Facebook page, or the direct donation page of the U-Pick Video Game Marathon for Charity for details.

Getting Better Returns

One of the things I’m working on is getting more bang for my buck (aka better returns on my investments). Previously, the best return I could hope to get over a 2 year period was in debt payoff – specifically, my student loans, which all carry 5% interest rates. That rate is actually a tab bit lower if you take into account the tax deduction I get on student loan interest, but that’s negligible enough to ignore.

Those student loans are certainly a good place to start – certainly better than dumping extra cash into my sub-1% savings accounts, anyway. And while I will still be contributing my planned $5,000/year into my retirement accounts, the market is too volatile over just a two year period to consider it a higher yield than my student loans.

Pumping Up my Peer-to-Peer Lending

The option I decided to pursue in November was Lending Club. You may remember my peer-to-peer lending experiment with Lending Club in the past, where I lent out $50 in bonus money, but never put in any money of my own. After getting some encouragement from reading Lazy Man and Money’s update on his own Lending Club experiment, I decided to take the plunge in putting my own cash in. Seeing his net annualized return of 7.63%, and Lending Club’s own statistics on average net annualized return made the decision pretty easy for me.

Is there a chance that some of money I lend out will disappear through default? Of course – I’ve already seen a default on one of the three loans I’ve invested my initial $50 bonus with. It happens. It’s not pretty, but it happens. And by diversifying the loans I invest in (I’m not putting more than $25 into any one loan), I’m mitigating that risk as much as it can be mitigated.

We’ll see how that pans out – at this time, my Lending Club portfolio is now worth $249. I’ll give updates on the return I get periodically on this blog.

Looking Forward at December

I can already see that December will be much like November. More charity donations, and a lot more Christmas presents – it’s not going to be a cheap month. But hopefully I can also find some money to put into more Lending Club loans, after meeting all the savings minimums that I’m working on, as well.

25 months remain until my $0 Net Worth deadline.

Get $64.62 to Invest with Lending Club

Stephanie — Fri, 11 Dec 2009 14:32:52 +0000

Maybe you’ve been following my Lending Club experiment for months, or you’re just hearing about how to invest money with Lending Club now. Either way, I’m sure you’re intrigued by the idea of a free $64.62 bonus!

Why $64.62? According to the email Lending Club sent me, it’s because “last quarter, banks made $6.462 billion in profits and we doubt either you or your friends got a share. With Lending Club you will.” I’ve had an overall pleasant experience with Lending Club, despite one of my borrowers declaring bankruptcy. And why doesn’t that bother me? Because the money I lent that borrower was bonus money!

I took advantage of an opportunity not unlike this one and put Lending Club’s money at risk. It’s great to be able to try out their service without feeling like my own money is on the line. It’s given me a good enough taste that I’m confident in putting my own money in (at a later date). If that sounds like something you would want to do, here’s what you need to do:

Read through my Lending Club Experiment archives to familiarize yourself with the process – it won’t take you long to read it!
Sign up for online investing with Lending Club. Important: when you get to the “Referred by” field, you must enter kgazette to get your bonus. If you leave this field blank, you will not get your $64.62.
Link a bank account. You do not have to transfer any money, and they’re not going to take any money without your permission, but you must link a bank account to get the bonus.
You’re done! Now to invest…

This is where you have to pay attention to some of the rules.

If you don’t meet Lending Club’s location or income requirements, you can invest using their FOLIOfn trading platform. This is where you can buy notes that other investors wish to sell. People might be selling because they want to spend the money in their account, or for a variety of other reasons. Yes, some people are trying to unload bad loans, but that just means you have to spend a little time reading before you buy! (More about this in a future Lending Club Experiment post.)

If you do meet the location and income requirements, you can invest directly in peer-to-peer loans. You can learn more about this by reading my Lending Club Experiment archives.

This offer expires December 31st 2009, so don’t wait!

Lending Club: One of My Loans Defaulted

Stephanie — Wed, 07 Oct 2009 15:17:00 +0000

Buzz kill time! After five on-time payments, one of my Lending Club loan borrowers has just stopped paying the bill. I’d hoped this wouldn’t happen (of course I hoped this wouldn’t happen!), but it is sort of interesting to see how Lending Club handles it when someone stops returning their phone calls (literally).

When I logged into my account, I noticed it no longer listed my loans as “Issued and Current (2),” but rather “Issued and Current (1)” and below that, “Late 31 – 120 days (1).” Uh oh! So I checked in on it – August’s payment hadn’t gone through, and the one at the end of September had just “failed” as well. I’m not exactly sure what it means for a payment to “fail,” though. I suspect it might mean that my borrower had their payments set up as automatic withdrawals from a checking account, and when Lending Club went to take the money, there just wasn’t enough in the account.

At the bottom of the loan page, Lending Club helpfully listed the actions they had taken, in reverse chronological order. Here’s a screenshot (if it’s too small to read, click on the image to view it full-size):

Of course, that “Engaged external collections agency” at the top doesn’t thrill me one bit. But it’s really nice to see that Lending Club has been doing a lot to try and get payments out of my defaulted borrower. It’ll be interesting to see what happens from here. If a collections agency buys the debt, will I get a portion of my money back? Or will the collection agency try to collect without buying the debt, and so maybe I’ll have to wait?

If the collection agency buys the debt for pennies on the dollar, I could be out 22 bucks in free Lending Club opening-bonus money. I guess I can’t feel too bad about it, especially when I know people not paying their bills is simply a part of life. But… dangit!

Defaults happen.

Lending Club: First Payments Received

Stephanie — Mon, 06 Apr 2009 10:02:55 +0000

Late in February, I decided to start experimenting with Lending Club by investing the $50 bonus that was deposited into my account when I signed up (using a referral link). I chose two loans, which were issued and entered repayment. Last week, I received the first payment from each loan! You can see a snapshot of the payment I received from one loan below:

The “completion date” is the day which the payment hit my account. It takes a few days, because the borrowers pay through an electronic transfer, which takes a few days to go between banks.

So now there’s $1.66 in my account – one payment of $0.86 and another of $0.82, minus the $0.02 “cut” that Lending Club took. I could leave the money there and reinvest it once my account balance reaches $25, or I could transfer the money into my savings account and let it earn interest for a while.

If I just leave the money in my Lending Club account, it will be 16 months (15 months from now) before there’s enough money in the account to invest in a new loan. There would be $26.56 in the account at that point. If I move the money to my bank account, which earns 1.50% interest per year, I would have $26.81 by that time. Not a huge difference – I’m not sure that $0.25 is worth the effort of transferring the money every month. It wouldn’t even allow me to invest a month earlier! So I’m just going to let it sit there, for the time being.

All I have to do now is sit back and watch the payments come in each month (hopefully). So far the experience has been simple, easy, and kinda fun. Grow, money, grow!

I’ll continue to give little updates on my Lending Club account here, but there probably won’t be much else interesting to say, unless one of my borrowers decides not to pay, or pays late. However I would love to get the perspective of a Lending Club borrower! If you’ve borrowed money from Lending Club, contact me about the possibility of writing a guest post for Poorer Than You.

Lending Club Experiment: Loans Issued

Stephanie — Mon, 02 Mar 2009 12:06:44 +0000

Last week, I started up my Lending Club Experiment: to take the $50 bonus given to me for becoming a lender at Lending Club, and use it to test drive the service. It’s a hot topic – I can tell because I received a slew of emails asking me for referrals to get $50 bonuses. If you’re one of those that got a referral link from me, please feel free to share your experiences in the comments here.

It’s been a week, and a few things have happened. One of the loans I picked out last week fell through in the “review” phase, for whatever reason. My $25 was returned to my Lending Club account, and I chose to replace the first loan with a loan at a similar rate and risk level, so my estimated return is still around 13%. Now the two loans (or notes) that I’ve invested in have passed review, and are “issued and current.” They’re accumulating interest as we speak.

The above picture is a snapshot of my two loans, taken this morning (you can click the image to get a larger view if it’s hard to read). I cut off the identifying information that was on the left side, to protect my borrowers. But you can see that I’ve assigned these two loans to the portfolio “Bonus Money,” so that I can track them separately if I ever put money of my own in.

This is a wider view of my investments (again, you can click to view the full-size picture). You can see that my weighted interest rate is 13.32%, and my expected monthly payments are $1.68. I plan on leaving the payments in my Lending Club account, and when they add up to $25, possibly reinvesting in a new note.

There isn’t much for me to do for the rest of the month, except sit tight and wait for the 25th, when the first payments are due! We’ll check back in with things after that.

Lending Club Experiment: Starting Out

Stephanie — Mon, 23 Feb 2009 23:14:01 +0000

Those of you who have been following the site for a long time will remember that I used to be a member of (and cheerleader for) the peer-to-peer (p2p) lending service Prosper. A little while ago, Prosper voluntarily halted its operation while it seeks to become registered with the SEC. I never got around to lending or borrowing with Prosper before this happened.

Lending Club, a similar company, is registered with the SEC, and things are chugging along just fine. But I didn’t pay too much attention to Lending Club, because I didn’t need a loan and had no money to become a lender myself.

Well, today, I decided to try it out anyway. And I was able to do that because someone sent me a referral link to Lending Club, which gave me a $50 bonus to start out with. Now, perhaps the smart thing to do in my situation would have been to take the money and run, but I decided to lend it out. I like the idea of having $50 in “fun money,” to see if I can grow it.

This is the beginning of the Lending Club Experiment. If you’re curious about LC but don’t want to dip your toes in yet, you can just watch me do it! Or, if you’d like to try it yourself, contact me and I’ll send you a referral link, so that you can get your own $50 bonus. Or become a borrower – it might be the way to go, if you can get a good interest rate on the site.

Signing Up and Getting Started

After following the referral link to LC, things went really smoothly. I just made a username and password, and gave them my email address. After verifying my email address, I was back at the site, where I could choose between becoming a borrower or a lender.

After selecting “lender,” I had to give some identifying information: name, address, phone number, Social Security number, and date of birth. I then had the option to link up my LC account to a bank account, so that I could transfer in money to lend. I decided to skip this step, because you can also fund your account via PayPal, which I like. I’m not sure if you lose some money in PayPal fees doing that, though. But since I’m only lending out my bonus money (for now), I skipped the bank information.

The last step to becoming a borrower is to choose your “affiliations,” such as your hometown, where you went to college, where you work, and any organizations you belong to. This is so that you can find people who share something in common with you, when you’re looking for people to lend to. For example, wouldn’t you rather lend to someone who went to your college? Or is involved with the same charity as you? I put in my college, and continued on.

Now, I got to the point where I could browse “notes,” which are the loans you can lend to. Each note is $25, so I could invest in two notes. I decided to pick two different loans to invest in: one person doing a kitchen remodel, and one guy paying for his daughter’s college tuition.

My weighted interest rate for the two loans is 13.47%, and both have three-year repayment terms. I’m sure that somewhere in my finance classes I learned how to calculate what the payments will be: $1.70/month according to my financial calculator, but I could be doing that wrong.

My little Lending Club portfolio

Is it Risky?

Well, yes, a little. One of my borrowers could decide to cut and run with the money, and just stop making payments. Or be unable to make the payments, for whatever reason. That’s why I’m using the referral bonus for now, and not my own money. When I have some disposable income, I may contribute some of my own money to the account. Because risk is relative. And I could invest in corporate bonds… but those have default risk, as well!

Or maybe I’ll just keep reinvesting the money I get in payments, indefinitely. That could be fun, too! And that’s really my goal here: have a little fun with some money that I can stand to lose, learn a bit about p2p lending, maybe earn a nice return, and help some people get the loans they need.

Get Paid for Turning Your Friends Into Loan Sharks (or Debtors)

Stephanie — Sat, 16 Jun 2007 18:04:32 +0000

Ok, I’m just kidding about the loan shark thing. Most of you have surely heard of Prosper before, but in case you haven’t, here’s the quick rundown:

Prosper is peer-to-peer lending, often called “the eBay for loans.” You can go on there as a borrower and apply for a loan, and lenders will bid on interest rates to fund your loan. Or you can go on there as a lender, and bid on people’s personal/small business loans and try to get a nice return on your investment.

So anyway, Prosper unrolled a new feature for their users: referrals. According to their website, you can get paid one of two ways:

Refer a lender
You receive $25, and your friend receives $25 as soon as your friend funds his or her first loan.

Refer a borrower
You receive 0.5% of your friend’s loan amount as soon as your friend’s first monthly payment clears.

I like this, especially for the “refer a lender” option, because both you and your friend win. For the “refer a borrower” option, you win and your friend ends up with a loan, which is only good if they actually need it.

Here’s my question, though. Are the people you refer in any way linked to your account? I mean, say you went and put your referral link up on your blog, like this:

Stephanie’s Prosper Referral Link

And then someone comes along, signs up with your referral link, gets a loan, and then three payments in, decides to default on their loan. Will that reflect badly on you? Alternately, would a good borrower/lender reflect well on you?

From my preliminary sniffing around, I’d say your referrals aren’t linked to your account in any “public” way. There is an endorsement option you can do for people you know on Prosper, but that’s optional. I’m hoping it stays this way, cause I’d hate some Douchey McLoser to come along and stain my reputation.

Well, I’m going to go convince my mom to sign up for Prosper now. Maybe my sister, too. I bet The Boyfriend might be interested… woohoo, $75, here I come!