You’ve probably heard murmurs about Peer2Peer lending recently, and maybe thought that the concept made sense in theory, but then got distracted by hearing that Richard “Boner” Stabbone had tragically passed away and lost your train of thought.
P2P lending, in essence, is loaning very small amounts of money directly to a person that needs it for a particular expense in their lives who, for whatever reason, can’t get a good interest rate from a retail bank. I initially associated the term with micro-lending to rural farmers in Africa that were literally borrowing $100 to buy seeds so that they would have crops to tend that year, which sounded like a pretty noble cause, but also seemed like an insignificant financial investment. What I’ve only come to learn recently, however, is that it has now become very easy to lend to other American consumers that are trying to pay down credit card debt, their car note, or finance a wedding by purchasing a small fraction of their total loan (which can be between $2000 and $20,000), and you get a crazy high interest rate on top of it.
I was put on to LendingClub.com about two months ago, impressed by their promotion at the time in which they matched the first $25 you invest, so I figured why not get an immediate 100% return on my small investment? It took a good ten days for the account to get fully set up and funded, but then I was able to start browsing notes and evaluating the borrower: their basic information, the reason for the loan, their plan to pay it off, etc.
Based on the borrower’s credit history, interest rates range from 7% to 20%, with Lending Club taking about a 1% commission. In an environment where the typical high yield savings account is yielding 1.25%, 7% is pretty dope — let alone 14.5%, which is the average return I’m getting so far with the measly $100 that I have invested.
All loans are divided into $25 increments, so you can buy “a share” of the loan. You get paid the same way a bank collects mortgage payments: by receiving interest and a small percentage of your original (capital) investment at the same time, such that a $25 investment is paying out approximately $.85 a month. My personal goal is to have enough interest income to buy one new share a month, which would be approximately $800, still a small investment.
The thing I really like about LendingClub is that you get to personally gauge the borrower based on their overall internet etiquette and online presence, so it seems relatively simple to avoid sketchballs. To be clear, I’m still no expert on Peer2Peer lending just yet, which is why I’ve only dipped a toe in the water so far, but if it really is possible to get a consistent 14% return on your investment, I would be one stoked Frugal Bachelor.
Matt Northrop, just barely still in his 20s, has been advising friends, family, and colleagues on personal finance for years and finally had the balls to publish content about it. He has loved living in NYC for more than 5 years, and sincerely desires to help everyone get hooked up. 
