For anyone who missed the announcement on their blog, Lending Club is hosting a free 30-minute online webinar this Thursday, June 11th.

The webinar is designed to show you

“How to Put Your Cash to Work with Lending Club. We’ll provide an overview of how Lending Club eliminates the high cost and complexity of traditional banks and offers investors the opportunity for returns that average over 9% annually.”

Space is Limited so register now

Date and Time:  Thursday, June 11, 2009   Noon PT/3:00pm ET

Location: Online

A reader recently asked how the interest is calculated on Lending Club loans and what her return in dollars might be.

Here’s my answer:

Loans through Lending Club are amortized over 36 months to keep payments fixed.  The quoted rate is the yearly rate, so 1/12 the rate is applied to the outstanding principal each month.  To determine your return, you’ll need to calculate the monthly payment, take out the 1% payment service fee and multiple by 36 months.  I believe that estimated monthly payments are shown when you consider a loan, but if not, you can use the following formula in Microsoft Excel, Google Spreadsheets, or a similar program: =PMT(rate/12,36,-loan) where rate is the quoted rate as a decimal (13% would be 0.13) and loan is the amount that you loan.  For example, 10% interest on a $3000 loan would be represented as =PMT(0.10/12,36,-3000), which returns a monthly payment of $96.80.  Multiplying by .99 is what you would get each month after the 1% service fee is taken out.  So you would get $95.83 each month.  After 36 months, you will have received $3450.01 for a profit of $450.01.  That amount would be subject to taxes as interest income, so your after tax profit would be

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In part 1 of this topic, I discussed different ways to apply historical default rates to small value P2P loan portfolios.  To make more sense out of how historical default rates might affect loan performance, I ran a monte carlo analysis on a select set of hypothetical loans.   Here are the simulation results.

To get a better handle on the effect of historical default rates on P2P loan portfolios, I performed a monte carlo simulation on portfolios lending $100, $500, $1000, $2000, and $5000.  Since I assumed that the money was spread across investments of $25 each, those dollar amounts correlate to 4, 20, 40, 80, and 200 loans respectively.  For each test case, I simulated investing in all A1, C1, E1, or G1 loans (using Lending Club grading terminology) as well as an equal mix of those 4 grades, which I called Div for diversified.  I used the following historical yearly default and corresponding loan interest rates (again from Lending Club’s site):

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Lending is back at Lending Club, but there are some new restrictions that I noticed when trying to lend:

First,  you must satisfy the Financial Suitability Standards and Investment Limits.  Those terms are as follows:

“I confirm that I (a) have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (b) have a net worth (determined with the same exclusions) of at least $250,000. In addition, I agree that I will not purchase notes in an amount in excess of 10% of my net worth, determined exclusive of my home, home furnishings and automobile.”

Second, you must satisfy the state condition by living in one of the fifteen approved states.  Those terms are as follows:

“The Notes are presently being offered and sold solely to residents of the states of Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Louisiana, Minnesota, Mississippi, Montana, New York, Rhode Island, South Dakota, West Virginia, and Wisconsin, and are not presently being offered or sold to residents of any other state, the District of Columbia, any other territory or possession of the United States, or any foreign country.”

I meet the first criteria, but the second one prevents me from Lending.  I suspect that more states will be added over time, much as they were when Lending Club first began.  Until I’m eligible to lend again, I’ll be monitoring the situation very closely.

Early this morning, Lending Club announced that their quiet period has ended.  Lenders can once again make P2P loans, though the mechanics of the process have changed slightly.  Investors will now purchase notes, with interest rates between 6.69% and 18.63%, that correspond to portions of loans made to borrower members.

The major change is that lenders who become customers of FOLIOfn Investments, Inc. (Lending Club’s new partner) can resell their notes through a trading platform.  This is the first of its kind trading system in the social lending community.  It really changes everything.  Now lenders at Lending Club will have the one thing that has always been missing in P2P lending, liquidity.  If you need to cash out of the loans you hold, you can sell them in FOLIOfn’s market rather than wait for your monthly payments to come in.  This will also offer new trading opportunities for people looking to buy or sell debts, both good and bad.

I am certainly excited about these changes and hope expect Lending Club to become the P2P lending platform of choice for borrowers and lenders.  Welcome back, Lending Club!

Lending Club, which has been in a quiet period due to a pending SEC filing, issued the following press release today:

Lending Club Files Registration Statement with the SEC

SUNNYVALE, CA - June 20, 2008 - Lending Club announced today that it has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 relating to its social lending platform.

The registration statement seeks to register the offer and sale of up to $600,000,000 in Member Payment Dependent Notes to be issued by Lending Club in a continuous offering following the effective date of the registration statement. The Notes will be issued in series with each series of Notes corresponding to a single consumer loan to a borrower member. Lender members will direct Lending Club to apply the proceeds Lending Club receives from the sale of each series of Notes to fund a particular consumer loan selected by the lender member and originated through the Lending Club platform.

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More on this topic (What's this?)

Lenders Put the Lies in Liar's Loans and Bear the Principal Moral Culpability (Money Morning, 10/17/11)

A Unique Opportunity to Collect a Safe 18% Dividend (Wall Street Daily, 10/26/11)

Read more on Loans at Wikinvest

Many convenience stores use drop safes to prevent burglaries. A drop safe allows money to easily be deposited, but not easily withdrawn. A cashier might deposit a set amount of cash into the drop safe once the register hits a certain limit. Doing so keeps the unprotected amount (in the register) small while allowing the protected amount (in the drop safe) to grow. Applying the concept of a drop safe to your financial plan can help you to save.

The idea of a drop safe is useful, but as we rarely want our savings to be sitting in cash, a “virtual” drop safe is more appropriate. Just like it’s real world counterpart, we want it to be easy to put money into and hard to get it out of. As in the convenience store case, the reason to use a drop safe is to protect your money from being stolen. In the case of your personal finances, you are trying to protect your money from yourself

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There’s no doubt that social lending is gaining in popularity and growing in numbers every day. More and more you hear of P2P lending being described as an investment because of the sizable returns that are often possible. Opinions vary about whether or not it is a good investment, but I’d like to consider whether it’s a socially responsible investment.

For anyone who hasn’t heard of socially responsible investing, here’s an excerpt from a post I wrote on the subject:

“The practice involves trying to maximize financial return while investing in companies that are deemed socially good. Such companies tend to favor policies of environmental friendliness, workplace diversity, fair treatment of workers, etc. Many socially responsible investors also avoid companies involved with alcohol, tobacco, and gambling as well as big oil or military contractors.”

The difficulty in determining whether social lending is socially responsible is the fact

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All of the many benefits of debt consolidation may leave little doubt that it’s the way to go. One reader asked if there were any down sides to debt consolidation and here’s what I came up with.

The main down side comes in the form of an opportunity cost. If you take out a loan and use it to consolidate your debt, you’re passing up the opportunity to use the loan proceeds for another purpose. If you could invest that money in a way that was more profitable than the rate of your high interest rate debt, then you might be better off not consolidating. The problem with this idea is that credit card interest tends to be so high that it would be difficult to find a better alternative. Taxes on alternative investments make consolidating even more attractive.

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With the current crisis in the mortgage industry, the likelihood of getting a mortgage with little or no money down is considerably less. Usually coming up with 10% down is sufficient to get a loan. The major drawback of putting down less than 20% is that you almost always have to pay PMI.

The method I used to avoid paying PMI on my first house was something called an 80/10/10 mortgage. The idea is that once you put 10% down on your house, you automatically have 10% equity in your home. That most likely qualifies you for a Home Equity Line of Credit for at least 10% of the value of your home. Taking out that credit effectively allows you to double your down payment and avoid PMI.

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