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.
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.
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?