Most homesteaders have the same beliefs on money; borrowing is bad, cash is king, and the less you need, the better. However, this mindset doesn’t always work in today’s modern world. To be truly self-sufficient, you need to have a large nest-egg to fall back on in case of emergency. But with the war on the middle-class, most US families are only one emergency (medical bill, natural disaster) away from bankruptcy. However, the traditional means of buying stocks as investment may have run its course.
More and more people are shying away from the stock market. Between the outrageous fees and the poor performance, people are looking for other forms of investment that will pay decent dividends while being less risky. Before, you could earn 3% interest on bonds, a very safe investment, however these days you’ll be lucky to get 1%.
In addition to a poorly performing stock market, people are taking a closer look at their banks. Banks are so successful because they understand peoples’ impatient nature. People are willing to pay more for something to be able to have it right now, so they charge fees and interest on credit cards and loans. Oftentimes they’ll lure people in with low introductory interest rates, only to raise them to double digits a year later. Borrowing money from the bank has often kept people in poverty, as opposed to helping them thrive.
This is where Lending Club comes in. Lending Club is a peer-to-peer lending platform. What does this mean? It means people turn to Lending Club to take out loans. Because Lending Club is not a brick-and-motor bank, it can afford to offer loans at a much lower interest rate, making it attractive to borrowers. What I really want to talk about today, though, is putting your investments in Lending Club.
By the way, Lending Club is not sponsoring me at all to write this post, I have simply loved my experience with them.
How does Lending Club work?
In a sense, you are acting as your own one-man bank. You decide the amount of risk you’re comfortable with and the interest rate you would like to receive. They do all of the background check on the borrowers and give them a rating. Obviously, the safer borrowers have a lower interest rate, which means you make less. Lending Club also has collections agents they use to track down missing payments if a borrower is late. Also, Lending Club charges a 1% fee on the payments they process, or 25 cents per note (far less than your 401k manager will charge). I love feeling like I’m on the winning-side of the banking game.
What’s so great about Lending Club?
Start with as little as $25
Lending Club funds loans by issuing $25 notes. There are very few stocks you can buy for $25 (minus the $5 purchasing fee). Even those of us who are struggling, living paycheck to paycheck, need to save for “retirement” or better, old age. That means putting as little as $25/month into Lending Club can set you up for retirement. If you use the trick below, it will continue to compound until you have quite a nest egg. $25 a month is really worth it for peace-of-mind for your future.
You can set up your account to automatically search for notes based on criteria you decide. You can filter notes by length of the loan, borrower’s credit score, borrower’s income, the type of loan they want, loan amount, and a number of other criteria. Then, whenever your account has $25 in cash built up, it will automatically purchase a new note based on your criteria. Automatic compounding interest, without any work from you.
When I had my investments in the stock market, I found myself watching the market like a hawk. Every loss hurt. I was lucky to break even, and I hated the idea that what little money I did have was subject to the whims of the market. Brexit, the housing bubble, even smaller instances like a company I was invested in had a poorer quarter than expected. These could all hurt your portfolio. Lending Club, however, is much more stable. If a borrower defaults on their loan, the most you can stand to lose is $25. Even if we fall into another recession, or worse, Depression, hundreds of people would have to default to hurt your portfolio. I bet the people who lost tens of thousands of dollars when the stock market crashed wished they’d heard of Lending Club.
I’m currently receiving between 6-10% on my notes based on the allocation I’ve selected. I’m lending notes out at 10%, but a certain number of notes will default, which cuts into my return. Everyone will get a different return based on their selection and level of comfort. Lending Club is really great about keeping it realistic, though. They tell you what percentage of defaults you’re likely to have, based on your allocation.
If you’d like to learn more, or open your own account, and have Lending Club send a referral bonus my way, check them out here: Help Lauren Homestead
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