During those 4-5 years of college, when you’ve mastered 5 different cuisines that include hot dogs and flaming hot Cheetos, money can get a bit tight. It’s totally acceptable, expected even, to call home and ask for a few dollars to hold you over between paychecks or after your extravagant spending has completely depleted your meal plan. When you’ve hit the final year of your college experience and have started to dabble in your career path, you may need a loan of a different kind that your parents aren’t able to transfer over. Whether you need a down payment for your first solo apartment or you want to upgrade the car you’ve been driving since high school, some purchases are major and require a few extra dollars than your entry level job can secure. On the flip side, you may enter your first real job during your last year of college and may want to take a look at investment opportunities that aren’t complicated and confusing. Whichever side of the coin you fall on, Lending Club is revolutionizing the way people borrow and invest with peer to peer loans and investing into personal debt.
What is Lending Club?
Established in 2007 with the mission of changing the way people look at credit and investing, Lending Club is bringing a more promising financial future to the main stage. The platform was created to offer a peer to peer borrowing and lending system. Responsible borrowers and willing investors can meet in a single place to both benefit financially. It is the largest online lender in the United States when it comes to offering personal loans. What sets Lending Club apart is that it is one of the few platforms that offers a real life person the ability to cash in on another person’s debt. Previously, this was something that was only available to large banks and collection institutions.
How Does Lending Club Work?
Lending Club is a double sided platform that caters to borrowers and investors. For borrowers, the process is simple. The platform vets all borrowers, considering their credit score and gross income. Once the data is collected, Lending Club assigns each person a grade, ranging from A-E, which determines the kind of interest rates their loans would have. Generally speaking, Lending Club favors good credit scores, a decent credit history, a reasonable income, and a low debt to income ratio. As a college student, this can seem like impossible requirements. However, your student loans do not play a factor as you’re still in school or at least within your 6 month job hunting window. Secondly, your debt should be fairly low and your credit history should be at least 4 years long with small bills in your name like your emergency credit card, car note, and phone bill.
Qualified borrowers can apply for loans and choose an offer that investors provide. Once a loan is selected and the terms are agreed upon, the money is deposited directly into the borrowers account. You can borrow up to $40,000 with APRs ranging from 5.98% to 35.89%.
Choosing to invest rather than borrow money is always a good idea if you’re in the position to. While in college, you have less assets on the line and much more to gain as your investments grow which makes it an ideal time for investing. Lending Club makes investing in the personal debt of others simple and easy. First, investors start by choosing an account type. You can choose from an individual account, which is recommended, a retirement account (such as IRA or 401k Rollover), or a miscellaneous account (such as joint, corporate, trust, or custodial). Once you’ve chosen your account, choose a strategy that you want to use when investing through Lending Club. Investors can choose to set up automated investments or purchase notes, the latter being the most popular.
When your account is created and set up, you can start building your portfolio. Investors can choose to fund an entire loan or purchase a diverse group of notes which is suggested. Purchasing diverse notes ensures that your investments are spread out to increase your return as opposed to dumping all of your money into a single loan. The notes can be chosen manually or automatically. While the investing with Lending Club has lot to offer, especially to wet behind the ears newbies, it does require a $1000 funded account with notes starting at $25 each. Yes, $1000 seems like a large chunk of money. However, according to Forbes, the average millennial spends about 44% of their food dollars on eating out which is about $2,921 annually. That’s all tacos, burgers, and dollar menus and totally excludes beer, tequila shots for your entire dorm floor, and all the ginger ale you need the next day to recover. Cut back on the dining out and investing $1000 can seem a lot more reasonable. Loans are repaid to investors with interest and principle included.
What Are The Risks?
No matter where you invest your money, there is always a risk involved. You are putting your money into something that you are hoping provides a greater return. That’s how investing works. However, Lending Club lessens the possibility of losing your hard earned money by making diversifying easy with a plethora of notes to choose from. The platform has historical returns of 3-8% and provides investors with access to the consumer class which was once unavailable.
However, borrowers are people and they may default on their loans for a number of reasons. Lending Club will make every reasonable effort to retrieve your money in the instance this happens but if they are unsuccessful, your investment is lost.
Like with any investment, including the investments we’ve talked about on the blog, do your research and weigh out the risks with the benefits and never invest more money than you are comfortable with. In the meantime, cut back on taco Tuesday and save up your coins to make dollars for your future.