Investing Archives - Live Debt Free

Lending Club Review

02.11.2013 by Kevin Mercadante //

At a time when investors are making record low interest rates of little more than 1-2%, there is an opportunity to earn much higher returns through peer-to-peer investing with Lending Club.

And for would-be borrowers, the news is almost as good. They can borrow money from Lending Club investors at rates generally below those offered by credit cards. They can do so without putting up collateral and without all the red tape that comes along with borrowing from a bank.

Note: A few years back Matt used Lending Club to consolidate his debt and has been investing with them ever since paying off that loan. Over the last three years he has averaged an interest rate of over 10% on his investments with Lending Club. (Read more about Matt’s first hand experience with Lending Club.)

What is Lending Club

Lending Club is a “peer-to-peer” lending company, matching borrowers directly with lenders.

The model removes banks from the process, enabling the borrower to pay a lower interest rate, and the investor to earn a higher rate of return. The company is the first peer-to-peer lending organization to be registered with the Securities Exchange Commission.

The company began operations in 2007 and has originated over $1 billion in loans.

According the company’s website, the latest statistics–as of November 23, 2012–include:

Loans funded to date: $1,348,306,700
Interest paid to investors since inception: $114,375,168

77.32% of Lending Club borrowers report using their loans to consolidate debt or pay off their credit cards. Can I get an Amen?

How does Lending Club work

Both investors and borrowers can go to the Lending Club website (borrowers click here | investors click here), sign up and investigate the loan programs available, including loan requirements and grades, interest rates, terms and any other factors connected with the transaction.

Loans sizes range from $1,000 to $35,000 (the maximum loan amount), and are unsecured, personal loans. If a borrower is determined to be credit worthy, Lending Club assigns them a credit grade that determines the interest rate charged. Credit grades are determined by the borrower’s credit characteristics, including credit history and credit scores, loan amount and debt-to-income ratios.

Loan (or note) listings are provided on the Lending Club website that reveal the loan grade, loan amount, and loan purpose. Investors can choose loans to invest in from the listings, deciding, for example, what loan grades and interest rate terms they deem acceptable – then they can save the filters and use them later to find and fund more notes.

How investors benefit from Lending Club

According to the site, Lending Club has over 45,000 investors who have funded more than $1 billion in loans. And they have collected over $114 million in interest payments.

Lending Club Notes ($20,000 denominations) have a net annualized return that is determined by loan grade. For an A note, the net annualized return is 5.66%, ranging up to a G note with a return of 12.07%. The nominal average interest rate is 14.21%, with an average default rate 4%, and an average net annualized return of 9.64% (Matt is currently earning at 10.23%).

Lending Club itself makes money by charging a service fee to investors and a loan origination fee to borrowers, similar to points charged by a mortgage lender.

Investors start by opening a account with Lending Club and depositing their money. They then choose the loans they want, based on the expected rate of return on investment and the level of risk they’re comfortable with. Higher rate loans also carry higher risk, while lower risk loans offer lower interest rates.

Click here to learn more about investing with Lending Club and to open an account.

How Borrowers benefit from Lending Club

Borrowers can borrow money through Lending Club for less than they’ll pay for most other loans. Since there’s no “middle man” in the Lending Club process, they can see a loan approval in less time and with much less documentation. Borrowers can get debt consolidation loans to pay off credit cards charging, say, 15% with a loan from Lending Club carrying a rate well under 10%.

Which is exactly what Matt did. He consolidated three credit cards and an auto loan, then paid it off in seven months.

Lending Club isn’t a “no other way” lender, and there are some stipulations that keep loans primarily to higher quality borrowers. According to the website, fewer than 10% of loan applications are approved. The credit standards are pretty stiff, with a minimum credit score of 660.

This is because Lending Club likes to deal with borrowers who are going to pay off the loans. Makes sense right?

Some statistics on the profile of the average borrower from the site:

715 FICO score
14.98% debt-to-income ratio (excluding mortgage)
15.21 years of credit history
68,831 personal income (top 10% of US population)
Average Loan Size: $12,159

Even with the high credit standards required by the program, Lending Club offers tangible advantages for borrowers who do qualify.

As mentioned above, 77.32% of Lending Club borrowers report using their loans to consolidate debt or pay off their credit cards. How cool is that?

Click here to learn more about borrowing with Lending Club and to open an account.

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Betterment Review

02.06.2013 by Kevin Mercadante //

The past few years have seen the rise of a number of specialized, online investment management services. One of the better programs out there is Betterment.

Betterment describes itself as “The fully diversified, automated, and smart investment account that helps you feel good about your future.” It offers a simple, efficient investment system that will appeal to a large number of investors.

How Betterment Works

Betterment uses a simple investment strategy that’s based on two investment options, referred to as baskets. One basket is made up of stocks and the other of treasury bonds. But rather than holding individual stocks, each basket is comprised entirely of a mix of exchange traded funds (ETF’s).

As an investor, all you need to do is set your portfolio allocation and the system handles your investing for you.

Unlike many online investing services, Betterment does not require a minimum opening account balance. If you open your account with less than $10,000 however, you will be required to make monthly deposits of at least $100 until the balance is achieved. Once you reach the $10,000 mark, continued monthly contributions are optional.

You can move money easily and automatically between your Betterment account and any outside accounts you have with next day transfers. The system also allows you to do investment projections online simply by changing asset allocations and projected contributions.

One of the coolest parts is that you can “try before you buy” so-to-speak by running savings goal scenarios before actually committing the money to those investment mixes.

Betterment will also give you $25 if you open and account with at least $250.

Betterment Pricing

In regard to investment fees, Betterment has no transaction fees, but charges a management fee based on portfolio size. There are three pricing tiers that determine the amount of the management fee:

for accounts under $10,000 the annual percentage charged is .35% of the balance,
for accounts of $10,000 and up to $100,000, the fee is .25% of the balance,
for balances of $100,000 and higher the annual fee is .15% of the balance.

If your account balance is $100,000, your annual account management fee will be .15% of the balance, or $150.

This makes betterment one of the lower cost investment systems around, especially on accounts with higher balances.

Betterment Advantages

Pricing is an obvious advantage with Betterment. To be able to maintain $100,000 of managed investments for just $150 per year would be difficult to duplicate elsewhere.

Simplicity is another advantage. You can set your portfolio allocation between stocks and bonds and management will take it from there. You don’t need to actively trade, to follow your investment positions on a daily basis or to make changes.

Betterment also has professional management which saves you the time and effort that will take to become a successful investor. And rather than investing in stocks, management invests instead in ETF’s. That not only keeps trading expenses at a minimum, but it also achieves significant diversification within each asset class.

Management’s investment philosophy also seems very solid. The bond basket is invested in ETF’s that hold Treasury Inflation Protected Securities (TIPS) with maturities of three years or less. That minimizes interest rate risk that is inherent with longer-term bonds. This makes Betterment’s bond positions more secure than typical bond funds

The stock position is held in ETF’s that invest in value funds and small-cap funds. At this time the entire stock portion is held in US based stocks. Betterment holds the stock position in several ETF’s that are determined by management to best achieve the program’s investment goals for its equity positions.

Like many of the online investment systems available, your holdings in the account will be limited to Betterment’s baskets. You will not be able to hold individual stocks, mutual funds, or ETF’s as you would in a typical online brokerage account. Betterment is, after all, a managed investment account, and not a general investment account. This is how they keep it simple for you, the investor.

On balance, Betterment looks to be a good investment choice for most investors, particularly for those who are looking for aggressive equity investments, counterbalanced by conservative bond investments. And the cost and simplicity will be hard to beat anywhere.

You can get more information on how Betterment works, and take advantage of a free 30 day trial offer and the $25 bonus by visiting the Betterment website.

You can also read Matt’s Betterment Review here.

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Lending Club Review [My Personal Experience]

01.29.2013 by Matt Jabs //

In this article I will review in detail the subject of borrowing from Lending Club and then provide perspective from several individuals who have experience investing with Lending Club. Enjoy.

Peer Lending with Lending Club

My personal experience with Lending Club…

Lending Club is a social lending network that brings together investors and credit-worthy borrowers to offer value beyond traditional banks.

Borrowers with good credit can get personal loans from $1,000 to $25,000 at interest rates that are often significantly better than rates from conventional sources.

For lenders, money invested goes immediately to Lending Club’s approved borrower members. Most lender members spread their investment across tens or hundreds of qualified borrowers. Notes (that correspond to specific borrower loans) are offered only by means of a prospectus.

Borrower Lending Club Review

Those of you who read DFA on a regular basis know I am on a purpose driven mission to free myself and my family from the bondage of debt. For the last 7 months I have been trimming excess fat from every part of our budget and after making many positive changes have recently shifted my focus on getting a few big wins. That’s when I stumbled upon Lending Club…

My debt consolidation broken down…

A while back I had the eye opening experience of calculating my interest amount paid, and ever since have been growing increasingly restless over the high interest rates on my auto loan and 3 remaining credit cards. The rates, already high enough to make a gangster blush… were recently pushed even higher by my big bank lenders. And that was the last straw for me… I was ready for a change.

My loans and their rates:

Auto Loan – Capital One @ 10.5%
Credit Card 1 – JP Morgan Chase @ 14% (rate recently increased due to “bad economy”)
Credit Card 2 – Capital One @ 16.25% (rate recently increased due to “bad economy”)
Credit Card 3 – Citigroup @ 19% (rate recently increased due to “bad economy”)

I am almost never a proponent of borrowing money, but this is one exception where it is actually quite wise to in more than one way. It did not take much deliberation between me and my wife before drawing the conclusion that it was clearly in our best interest to go ahead and borrow from Lending Club in order to consolidate our high interest debt into one loan at a MUCH LOWER RATE.

Why Borrow with Lending Club?

Let’s be honest… nobody wants to borrow money… period. In fact — as I mentioned above — if you have been following my Debt Free Adventure then you know full well how adamant I am about paying off my debt and reaching financial freedom.

So why did I borrow?

I had heard about peer to peer lending, aka social lending, aka p2p lending before but had never really paid much attention or explored if it could be an option for me. Why? Because I am not looking to borrow money!

My idea to consolidate with peer to peer lending…

Since I hate dealing with credit card companies and big banks in general I wondered… could I borrow from Lending Club to consolidate my high interest consumer debt and pay less interest in the process?

Once on the scent of a big win, some obvious questions racing through my head included:

Who is lending us the money and would we be repaying “regular Joe’s” instead of the Big Banks whose practices we have grown to abhor?
What kind of interest rate could we get?
Will they approve our loan?
How long will it take?
How much are the fees?
Is this a wise alternative to simple debt repayment of our numerous individual high interest debt accounts?
Can I prepay the loan early without penalty?

I studied peer to peer lending with Lending Club…

I started poking around on the Lending Club website… studying every inch of it, especially the fine print! All of my questions were answered rather quickly and directly. Here are the answers I found to the above questions:

Individual investors (regular Joe’s like you and me) were lending me the money. As a matter of fact, I ended up getting financed by many other personal finance bloggers I interact with on a daily basis.
With our credit score we were able to secure a rate of 9.32%.
Our loan was approved in just a matter of hours.
An $11,000 loan cost us only $85 in fees.
Even after adding the $85 fee into the calculation, we stand to save $500+ over the life of the loan.
There are no prepayment penalties… so I could pay the entire loan off tomorrow if I so desire (although that may not make my investors the happiest campers!)

It was an awesome feeling to think I would be saving over $500 because of a much better rate, then also paying the necessary interest to friends and business associates rather than huge corporate banks in whom I have nothing short of anti-confidence.

While this was the best decision for my situation, make sure you evaluate your own situation strategically before proceeding — every situation is different and each will require careful attention to detail.

You can easily apply to see if you can get a rate that beats your other loans and credit cards balances… and if you can then consolidate your high interest debt through Lending Club is a solid idea.

Investor Lending Club Review

“Our investors join LC for the opportunity to make above-average returns and to diversify their current holdings in the stock market and other traditional investment vehicles. As the economy starts showing signs of recovery, many investors are also moving away from “defensive” assets like CDs and high-yield savings accounts.
With a 9.61% net annualized returns since we opened back in June 2007 (net of fees and defaults, across all credit grades) despite the tough credit market, LC certainly is an attractive option to benefit from a recovery in consumer credit.”
— Rob Garcia, Director of Product Strategy at Lending Club

~~Although I am not currently in a position to invest with Lending Club~~ (after paying off my Lending Club loan, I now invest with Lending Club) the system they have in place is fast becoming one of the best decisions to be made with investment dollars… especially in a down market. The alternatives available to the average investor pale in comparison to the several benefits offered when investing through LC.

Below I will list all the reasons to invest as found on the LC website, then deliver several testimonies from actual investors that I know personally. Several of which are my financial mentors, and all of which I trust.

On their website Lending Club gives us these 7 Lucrative Reasons to Become an Investor:

You can earn better returns – Since June 2007, LC investors have earned an average net annualized return of over 9%. Read the report by Javelin Research.
It’s straightforward – The money you invest funds loans made to creditworthy borrowers.
We’re selective – Many borrowers apply, but less than one in ten are accepted. LC approves only creditworthy borrowers as members.
It’s easy – We make it easy to build a portfolio based on your criteria. Most lending members spread their investment across tens or hundreds of qualified borrowers.
We set fair and fixed rates – Our rates are based on historical trends and the current economic climate. Borrowers pay a fixed rate for the 3-year life of the loan.
You get flexibility – You can reinvest any interest and principal payments each month or withdraw them like an annuity. You can also put your notes up for sale on the Note Trading Platform.
Do good while doing well – Many of our lender members find it rewarding to help others meet their financial goals. Especially in this economic environment, LC members come through when big banks do not.

Lending Club Investor Testimonials…

Each of the following testimonials are from individuals in my own personal contact list. They are not paid by Lending Club to share their opinion, rather they simply wanted to share their story in an effort to help other investors — seeking stable opportunities — to plug into the lucrative option they have found.

Another great part of LC is the ability to invest in those you trust. Both Nickel and Erica invested in us and helped fund our loan. I believe Pete tried, but our loan was funded so fast that he didn’t get the chance!

All of these investors agree that the returns they are making on Lending Club far exceed that which the could be making in a high yield savings account

– Nickel of FiveCentNickel.com

Over the past few months, I’ve become a fan of investing through Lending Club. Prior to actually trying it out, I’d been pretty skeptical of peer-to-peer lending. After all, the idea of lending money more or less directly to other people is pretty “out there” nowadays. I finally decided to give it whirl with a bit of “fun money,” and I haven’t look back since.
It’s too soon for me to make any grand claims regarding investment performance, but things have been going great so far. LC is very easy to use, and the interest rates are great. The fact that you can invest as little as $25 per loan also means that you can really reduce your risk by spreading your money around.
While we haven’t abandoned more traditional investment vehicles, we’ve been gradually increasing our LC investments as we’ve become more comfortable with the concept. On top of everything else, it’s kind of fun to know that your loans are directly helping real people.

– Erica Douglas of Erica.Biz

I’m a high net worth investor, and I chose to invest through Lending Club over many alternatives. Here’s why:
The stock market is risky and could plummet
It’s easy to get started with as little as $25
LC handles all the payments, so I don’t have to worry about collecting money directly from people
There aren’t any mammoth trading fees that would eat up an entire small investment like mutual funds/the stock market.
Besides, even a “high-yield” savings accounts is only paying 1% right now. 1% should be pretty easy to beat.
I use LC the way many people would use a CD ladder. I can liquidate my positions easily if needed via their Note Trading Platform. And it has far better returns than a CD ladder would.

– Pete of BibleMoneyMatters.com

Over the past year or so I’ve heard a lot about the peer to peer lending market, and investing through Lending Club. For quite some time I’ve been pretty skeptical about the concept, and I just assumed that most of the people borrowing through Lending Club were big credit risks unable to get a loan elsewhere. I also didn’t want to be lending money to people for irresponsible reasons. After talking with other lenders and doing a bit of research I’ve found that while there certainly are some folks on there that are big credit risks, as a lender you’re able to choose who you loan your money to, and what you lend for. That allows me to be picky about who I’ll lend to, and how much risk I’m willing to take. Add to that the fact that LC registered with the SEC in 2008, and their credibility in my eyes has increased quite a bit. I’m finally taking the plunge because I believe my money can give help to others, and still make me a little bit of money in the process.

– Jacqui Pittenger of Twitter

I signed up in February 2009 through a free $25 referral link on one of my favorite blogs – Dual Income No Kids. I figured there’s nothing to lose when you invest free money. I enjoyed the experience so much, I soon added another $500 to my account.
While I would not consider peer to peer lending safe enough for an emergency fund, or even as a primary investment strategy, it’s a worthwhile addition to my investment portfolio. My mix of loans skews to the riskier side with rates ranging from 8% to 18%. My current Net Annualized Return is 13.55% and all payments are current (so far at least). Even a few defaults would still leave me with an acceptable return.
The promise of yields far in excess of a savings account or CD is very tempting. But my favorite feature is being able to fund loans to people I want to help – like those digging out of a mountain of medical debt, moving closer to their place of employment, or purchasing a motorcycle to reduce fuel consumption. If I have any doubt about person’s ability to repay the loan I move on. There are plenty of applications to choose from, so trust your instincts.
In the spring I signed up to automatically transfer $25 from my checking account to Lending Club each month, though I opted out of their automatic investment plan. I prefer to hand pick my loans each month. Soon I’ll reach the point where I can not only invest in a ‘new money’ loan each month, but will also have a ‘repayment reinvestment’ every month as well.

Closing Thoughts on Lending Club…

For a long time we have bestowed great confidence upon our financial institutions; but with all the recent bail out money — that seemingly grows on trees — a rapidly increasing number of people, myself included, are turning to social lending providers like Lending Club for simplistic and transparent borrowing and investing. A lot of people are hungry for change, for the power of choice, and for greater control over their own financial destiny! And in my experienced opinion… LC seems to be answering that call quite nicely.

Using Lending Club has indeed been a big win for me and my wife and I do not hesitate to recommend their service.

Is Lending Club and peer to peer lending right for you?

Have you recently borrowed through Lending Club and want to share your experience? Are you an seasoned LC investor with a testimonial of your own? Maybe you simply have an opinion that just has to be voiced. Whatever it is… let us hear it!