Setting up a Lending Club Peer to Peer Lending Account

Over the last couple weeks we’ve looked into the basics of Peer to Peer lending, as well as, the process for opening an investment/savings account with Prosper.  Today we’ll look at the process for setting up an investment account with Lending Club. 

So let’s jump into the process.  Here’s the step by step process for setting up an investment account with Lending Tree.
Similar to before, I’ll include several images but the sign up process is quick and easy, probably easier than the process with Prosper.  It took under 10 minutes over 2 sessions (more on that later), and I was making screen captures along the way.

 

Image 1 is just getting started.  Depending upon exactly where you start, you’ll see one of these buttons.

 

 

 

 

Image 2 is an initial sign up page.  Selecting your account type and registering your email and password.

 

 

 

 

Image 3 is the personal information page.  Name, address, phone, DOB, SSN… the basics.

 

 

 

 

 

 

Image 4 allows you to fund your account.  I like that Lending Tree actually allows 4 options – Bank Transfer, Wire Transfer, Instant Transfer with Paypal or Credit Card (a 1 time option with a $250 minimum) or Check.

 

 

 

 Image 5  I selected Bank Transfer to replicate the process with Prosper. 

 

 

 

 

 

Image 6 is your home page.  Since I selected to fund via bank transfer I’m in a holding pattern and still need to verify my account.  This is the same process in that a small deposit will be made to my account and I’ll need to verify that amount.

Of note here is the check list with the red dot directing my next action.  Also is the option to establish a recurring contribution.  I imagine this small feature has contributed to Lending Club’s growth. 

 

 

 

Meanwhile Lending Club also issues a couple emails verifying your sign up and account registration.  Mundane and no action required (unlike the Proser set up process), so I’ll spare you the screen shots.

Fast Foward a couple days and it’s time to verify your bank account.  This is a couple step process, but pretty simple and intuitive.  We’ll pick up with Step 7.

  Lending Club 7

Image 7  Check your bank account and you’ll find a small deposit and withdrawal from Lending Club.

 

 Image 8 Log back into your Lending Club account and following the link to verify your account.  Here you’ll need to enter one of the amounts from your account.  Either the deposit or withdrawal. 

 

 

 

 

 Image 9  Once you’ve entered the correct amount, you’ll immediately receive a confirmation indicating that your account is now active.

 

Image 10 is to add funds to your account.  Lending Club promotes recurring contributions (both Prosper and Lending Club allow it).  Select either botton based on your intent.  I selected “Add Funds” for the sake of this demo. 

 

 

 

Image 11  Time tp Transfer money into your Lending Club Account.  I elected to transfer a $100 electronically from my bank account for this demo.  A wire option is available for immediate transfers.  I didn’t figure the cost of the wire (my bank charges) to be worth the speed.

 

 

 

 

Once the transfer is complete, you’ll receive another email confirmation.  Because I went with the bank transfer, I’m in another brief holding pattern.  Personally, I’m ok with these delays because 1) I won’t want to pay for a wire and 2) once my account and investing approach is established, I can set up recurring desposits to smooth over the waiting times.

You will receive an confirmation email once the transfer is complete.  At this time, you can log back into your account and begin the “investment” process.

A couple quick notes,  to start.  While you are technically loaning money to another individual, the legal structure in place is one of investing, similar to bonds.  You are investing your funds into a loan or bond-like product that represents the borrowing action of the opposite party.  I’m happy to address questions on this in the comments, but prehaps the remaining demo will help.

 

Image 12  Upon logging back into my account, I can observe my funds available for investment.  You’ll recall we started with $100.

 

Image 13 – The loans or investments you can make are called Notes.  Press Browse Notes to idenify the loans in which you wish to participate.

 

 

Image 14 –  Reviewing the available notes can be both fun and overwhelming.  Lots of information is provided so the first step is understanding how to process it.

At first, all the available investments are visible – many pages and several hundred options.  The key is sorting on those which respond to your investing objectives.

On the far left are search options.  Terms (36 or 60 months) and Risk/Return levels were the key metrics I used for sorting. 

 

I started looking at the lowest risk loans, 36 Month Grade A loans.  Most of these offer 6.5 – 9% returns, which is fantastic comparted to the 1.5% returned by most CDs.

I then broadened my searchs based on Credit Ratings and Loan Purposes.  I was further able to investigate each specific loan or note by looking at the borrower metrics – income, rent/own, monthly payments, ratios, etc.  I not showing those detail screen captures given the personal (but not private) nature of the data.  The data is there when you’re ready to invest.

 

 Image 15 – I settled on 4 notes at $25 each.  What surprised me was the interest rate I was able to achieve for what I deemed as reasonable loans.

My pre-default adjusted notes promise to return nearly 14%.  Lending Club inserts the default rates for level setting purposes, but these appear to be generic overlays which are representative of their full portfolio.  The reality is that my personal default rate could be 0% or even 100%.  Hopefully, my selection criteria will be minimize my risk.

So what did I select and why?

Again, I bought into 4 notes at $25 each, and I’ll summarize my interest in each.

Note 1 – “Never Late” – is a Home Improvement loan for an individual with a credit score in the 815-819 range who also reports a montly gross income over $21k.  This person had a low % utilization or their credit and a low debt to income ratio along with a strong employment history and no report delinquencies.  This all sounds like a safe loan situation which surprised me that it was returning over 11%.  Additionally, over 300 over lenders/investers were participating in this loan.

Note 2 – “Strong Income” – is a debt consolidation loan (most are).  The borrower credit score is in the 695-699 range who reports a monthly income over $7k/mo.  The ratios are higher for this person but the return over 13%.  What struck me for this one was the answer to some of the more specific questions.  The borrower has recently refinanced their home to 3.5% on a 15 term and plans to consolidate multiple debts into this single payment.  This one could bite back, but the language and actions seem to demonstrate someone who is both ‘aware’ and making sound decisions.  203 people appear to agree and are also investing in this note.

Note 3 – “Freedom” – 383 people are taking this risk with me.  A risk with promises of a near 18% return.  A near $200k income, and 700+ credit rating struck me about this note.  The title of “Freedom” made me wonder if this person is a Dave Ramsey fan and in the details the person explains that this consolidation effort will free up over $2k in monthly obligations.  If this person is a Ramsey fan and plows that new extra into fat principle payments, this note can payoff early, thereby reducing the risk further.

Note 4 – BOA Consolidation – Another 700+ rated borrower with a prime income and low ratio.  Only 91 other investors are participating, but that means some are making larger investments. 

 Notice that I’m participating in loans that are nearly fully invested.  That means my money will start working sooner, it also means that many others have already desided to participate in the loan.  Since I’m comfortable in admitting that I’m not a Lending Club expert in my very first outing, I don’t mind reading other queues.  Credit scores near or over 700 and large numbers of other investors.  That suggests that I’m not making this decision alone.

 

 

Image 16 –  Once my selections are made, I need to Place my Order.  I performed multiple searches and sorts and reviewed over a dozen notes before making my selections, so this summary page was helpful.

 

 

Image 17 – After Placing my Orders, I receive a confimation.  At this point it appears that Lending Club is erring on over communicating, but I’d always rather err in that direction.

 

 

 

 

 

Image 18 – Finally, I’m returned to my Account Summary.  This is a nice dashboard in which I can track my Notes as they complete their funding and shift into actual investments.  It then reports over the health of those investments.

 

 

 

 

 

At this stage, I’m complete.  Lending Club does issue another email comfirming my investments and further notices are promised as the notes fund.  I look forward to the monthly reporting as funds are collected and I actually start to receive payments. 

 

Investments I would not make

I talked about the loans I selected and why I made those decisions, but what are loans would not have taken?  Here are some examples of characteristics I’d avoid.

3 Examples of Loans I’ll Avoid: 

I think I’ll categorically stay away from car loans.  While this person has a high credit score, they are signing up to buy a 5 year old car at a really high interest rate.  Consider, if the note promises the investor 10.16%, then the borrower is payout 12-15%, or even higher.  This can’t be a smart decision by itself and especially not when the borrower is so obviously chasing an image with a BMW.

 

Small Business loans is probably another category I’ll avoid.  A debt consolidation or refi is one thing, a loan has been given (approved), and how the borrower wants to update the terms.  Ok, there’s a known quantity about it.  However, a business loan is another animal.  What is the business and the inherent risks of that business in the specific market?  This type of loan seems to ask more questions.

 

Of course a tax loan is along the same lines.  You probably noticed that I was looking for conditions that demonstrated a certain ‘awareness’ on the part of the borrower.  Needing a loan to pay your small business taxes starts to sound like evidence of a lack of awareness.  Something else I’d likely avoid.

 

Conclusion:

In conslusion, I found the process of investing with Lending Club to be very simple and intuitive.  The site was easy to navigate and left nothing to chance or question.  I give high marks to the over all process and so far would highly recommend Lending Club

* I am currently not an affliate for Lending Club, so I’m not saying that only to promote a link.  I actually do like the product and look forward to tracking my investments.

How about you?  What is your experience with Peer to Peer Lending and how would you rate Lending Club?

Smart Car Dealing: Buy, Sell, and Get a Free Car Upgrade

Dave's new(er) car!

After our homes, the largest single purchase most of us make is our car.  This can be a wise and financially savvy purchase but too often that is not the case.  In fact, I’d venture that rarely is it the case.

What gives me such confidence?  Well, the sheer numbers of new cars on the roadways.  Buying a new car for most people is just a bad idea.  There’s a reason behind the joke that most accidents happen on the show room floor.  That’s because most folks sign up for payments on a car whose value plummets the second it drives off the lot.

So if you want to learn to take advantage of these market patterns, then stick around and let’s see if we can’t learn a couple tips to help us make better decisions and perhaps learn how to score free, or at least significantly discounted, car upgrades for life.

 

Why buying a new car is a bad idea
New cars are expensive.  Even the cheap and scaled down models can run more than 10 grand.  This is more money than most can afford to pay out of pocket.  So new cars, almost always are financed.

This is bad math from the start.  You buy an asset that will drop in value at least 10% the second the ink dries on your contract and you’re agreeing to pay more than your negotiated price in the way of interest.  You’re getting burned on both ends.

And don’t for a second think that you are actually getting a good deal.  I recently heard a great podcast on NPR’s Planet Money about the car buying experience.  I highly recommend this episode to get the full context and message but here are my key takeaways.

  • Car manufacturers control only to whom they can grant an original dealership
  • State regulations make it nearly impossible for manufacturers to close poorly managed dealers
  • Regulations further enforce a dealer’s territory thereby creating a defacto monopoly
  • Dealers are incented to NOT reshape the buying experience

As a result, per the podcast, consumers rate car dealers amongst the most untrustworthy professionals in the business market.

Doesn’t sound like the best environment for striking a fair deal for your financial future.

Here are other important reasons buying a new car is often a bad idea:

  • Depreciation – we’ve referenced this already but it bears repeating.  New cars are aggressive in their depreciation.  A 10 percent loss in value the first minute of ownership is not uncommon.   A full half of the purchase price might be lost in the first 3 – 4 years of ownership.
  • The Deal – you’ll never get the best possible deal from a dealership.  Car dealers make lots of money and they don’t do that by letting you get over on them in the negotiation.   Plus the deal making process is a farcical charade.  It’s a cheesy good cop bad cop routine with the sales man supposedly negotiating on your behalf with the sales manager.  Meanwhile, they both know the bottom line they can allow while preserving their commissions.
  • The New Car Emotion – think about the announcer on The Price is Right when he declares the price as “a Brand New Car!”.  Buying and owning a new car is about our emotions so much more than our need for transportation.  The dealer knows this and deep down, you do too.  Failing to manage this emotion will set you up for a long term car note.
  • Hidden Costs – beyond the cost of the car and interest charges, you’ll also pay more in insurance, taxes, and registration and fees on a new car.  The hits keep on coming.
  • Overkill – a new car is more than you need.  At 15,000 annual miles and 200,000 miles in a car’s useful life means a new car equals 13+ years of inventory.  Name a single product for which you’d so willingly carry so much inventory.  Here’s a brilliantly illuminating article on this topic.

 

How to shop for a quality used car

The key to finding the right used car is to find the car that is right for you.  What do you really want or need in the vehicle?

  •   Budget – set realistic expectations by knowing your budget.  It will save your time and prevent a costly compromise.  My favorite two guidelines only pay cash and no more than a month’s pay.
  • Select the right style – your specific needs will help narrow your search.  Do you need room for baby seats and gear, seating for 4 (near) adults, or capacity to haul work or sport gear?
  • Annual Driving – understand how many miles your drive in an average year.  Knowing how much you drive will help you target a model year or range of years best suited to your needs.  Quick key, the less you drive the older car you can make do.
  • Choose Models – continue to narrow your search by ruling out models you don’t want.  For example, perhaps you do want a small SUV-like vehicle but find the PT Cruiser a little too cheesy for your tastes.  Rule it out while staying true to the type of car you do need.
  • Consider Features – power windows, anti-lock brakes, cloth seats, etc.  Determine the creature comforts that are must have vs. those that are optional.
  • Aesthetics – I draw a distinction between features and aesthetics, and for good reason.  AC is a feature while specific color is an aesthetic.  I’ll happily settle for my 4th favorite color before yielding on a serviceable AC.  Besides, we once owned an aqua green station wagon that ran well and had AC.  I can’t imagine a worse aesthetic but all our other priorities were checked off.

At this point you should have a couple cars in mind, prioritized of course, along with a prioritized list of features and then colors.  It’s ok to have an early favorite so long as you understand the process is still only beginning.
The next step is to research the market.  Check multiple car sites and their listings to get a feel for the market. 

After a few days you’ll gain an understanding for which model years or features cause some cars to rise or fall in value?  For example, I own a ’98 Jeep Wrangler.  It has a 4.0 liter 6 cylinder engine which prices higher than its 4 cylinder counterparts.  Knowing these types of pricing factors will allow you to properly focus your search.

Continuing this market study will fine tune your search and allow you to update your priorities, and before long you’ll be able to spot a ‘deal’.

In parallel with learning the market for the car you want, you should also be evaluating the market for your current car.  This will give you a realistic value and price point to assist in your sell or trade efforts.

 

When to Sell Your Car

If you’ve done the research above, you probably have some indication as to the drivers in the car market.  Here’s a brief rundown of items to keep in mind when determining the right time to sell your car in order to get the maximum price.

  • Mileage Milestones – 100,000 is a significant milestone in a car’s mileage.  Depending on make and model, most cars will experience a dip in value as it nears and passes this mark.  If you’re balancing the utility derived vs. the sales value, consider moving the case before cross 80,000 miles.  150,000 is another similar milestone.
  • Model Updates – We all know that manufactures update their cars every year.  Some updates are subtle and some are full redesigns.  You’ll want to consider moving a car before it starts to “look old”.  This is somewhat subjective so use your new market knowledge to guide your hand.
  • Car Features vs. Time of Year – Does your car’s heater not work?  How about the AC or do you have a sunroof or even a convertible?  Choose a season appropriate time to sale.
  • Routine Maintenance – what kinds of routine maintenance is in your 5,000 mile future?  You may want to sell in advance of these expenses or choose to hold the car through those costs.
  • Sell by Owner? – If you’re planning to sell your car yourself then why not put it on the market today?  Think about this.  If you’ve already made a buy decision then your current car is the anchor holding you back.  If you’re not yet ready to buy but maybe getting close.  Then list your car and be patient for the best price.  This tactic puts you in more control of the exchange.

 

How to Sell Your Car

You’ve made the decision to sell your car.  Now you need to execute the plan.  Take these steps to ensure you get top dollar for your car.

  • Know the market – same as above.  Knowing what your car is worth is the best way to actually get the most out of it.
  • Private Sell or Trade – Odds are overwhelming that you’ll get a better net deal if you sell your car as a private seller.  (The opposite is also true, you can score the better deal by buying from a private seller).  During a trade in the dealer has two levers to work – your trade and the purchase price.  If you make hay on one side you’ll give it on the other.  The dealer doesn’t care which side they make their money so long as they hit their targets.
  • Numbers Game – list your car for a little more than your target price (target price, not your lowest price).  If you want $6000 for the car, the list it at say $6500.  You’ll have room to negotiate and may make a little more.  You’re the car dealer in this exchange but you can be savvy without being jerky.
  • Clean it up – Have your car looking its best.  Wash, wax, detail, vacuum, etc.  Look into minor repairs like dings outside or knobs or vents inside.  Also consider new floor mats if the old ones are worn.
  • Advertise – draft a listing and get the word out.  After you clean the car, stop in a park for a few photos.  Use the best and most sleek in your add.  Your listing should then be simple and direct – make, model, year, features, and price.  Compare to other ads and personalize your favorites.
  • Marketing – Post your ads for maximum exposure – Edmunds, AutoTrader, Autobytel, Cars.com, CraigsList, Local Newspapers, bulletin boards, and For Sale signs in the window are all cost effective options.  Choose more than one for the best effect.

 

So What Was That About Getting Free Car Upgrades For Life?

The idea of free car upgrades for life is more of a mindset than hard fast mathematical function.  The reality is that if we treat our cars as financial assets which we routinely broker rather than single large investments sprinkled through our adult lives, we’ll enjoy a lower net cost of ownership.  And with this flexibility we can seize upon opportunities to enhance our experience.

Consider the principles we’ve stepped through so far.

  • Used is often better than New
  • Prioritized shopping – needs ahead of wants
  • Market awareness
  • When to sell for max value
  • How to sell for max price

Now, what if we could string these together with a little bit of added entrepreneurial spirit?  What could that look like?

Let’s step through a couple illustrations to see.

 

Here’s a pair of 1995 Toyota Corolla’s with similar features.  However, they sport a price differential of nearly $1000, or 25%.  Price shopping and being willing to sell at the right times could allow you to profit or at least sell at a price very close to your purchase price.

Corolla Compare

This principle holds through up the spectrum.  Here’s a pair of 2005 Ford Taurus’ with a $1300 price differential.

Taurus Compare

 

Here’s a pair of 2008 Ford Explorers with a $3000 price differential.  It’s clear that the higher the price range, the greater the profit opportunity.

Explorer Compare

 

Finally, here’s a car I’d love to own, a 2010 Acura TL weighing in with a $3000 price differential.

 Acura TL Compare

 

Admittedly these were quick finds, but they were also quick finds.  I imagine a more detailed search across multiple platforms would yield more pronounced savings.  Making a cash offer to a distressed seller could be a gold mine.

Let me further the point with a personal example.  The car I currently drive is a 2008 Ford Taurus.  With a little effort, we were able to buy the car at wholesale back in 2009.  It had very high mileage and we scored a good deal.  Three plus years later, the car is worth only a few hundred dollars less than what we paid, about $200 per year less.

From this example alone, you can see that I could have sold it for an immediate profit, sold later for a smaller profit or break even, or sell even later with minimal capital erosion.

These opportunities are available to anyone willing to put in a little work so imagine if you exchanged your primary car twice a year and profited $1500 per transaction?

An initial investment of $5000 would parley into a $20,000 (your purchase price) vehicle in only 5 years.  That represents growth to your net worth for a little leg work and flexibility. 

Now imagine your neighbor or brother-in-law who purchased a brand new $20,000 car when your experiment started.  He might be able to turn it for $5000 which puts him back to where you started while you’re debating your next upgrade.

A minor word of caution, these are examples so you’ll need to do your diligence in shopping and marketing but I find them to be reasonable and attainable.  You may also want to check the specific dealer requirements in your state as most have restrictions on the number of cars an individual may sell before being considered an actual car dealer. 

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