Summary of this post: Help me give away $2,000 in scholarships by joining two Facebook groups by this Monday, June 11th.
More detail: P2P lending lets you lend and borrow directly from people based on trust (e.g., Prosper.com and LendingClub) with insanely better interest rates. LendingClub is a new organization that I’m interested in. If we have the most people join the LendingClub Facebook group by this Monday, June 11, we’ll win $5,000.
If iwillteachyoutoberich readers help win by joining the most, I’ll give away a $1,000 scholarship to a college student who reads iwillteachyoutoberich, a $1,000 scholarship to a recent grad, and I’ll loan out $1,000 using LendingClub. (I’ll keep the other $2k to pay the taxes / save / go to Vegas.)
To help win…
- Join this Facebook group: IWillTeachYouToBeRich P2P lending = reduce stupid bank fees
- Then join this Facebook group: CreditClub: Lending Club Users on Facebook
More details, along with what I spoke to the LendingClub CEO about, below.
I just ran across something really interesting and I’m encouraging you to give it a try. Many of you have heard of Prosper.com, which lets you loan and borrow directly from other people. You get higher interest rates because you’re going direct and bypassing the bank marketing, security, and other infrastructure costs.
LendingClub lets you borrow and lend money directly to people in your own network. I spoke to Renaud Laplanche, the CEO, about his model. “We can provide a 3% better return by cutting out the middlemen activities that money banks spend on their supply chain: security, bank, real estate, marketing to get the deposit and then to spend the loan.”
In other words, because it’s direct, they can offer better returns. Check it out (my explanation below):
To lend money:
To borrow money:
Now I’ve written about teaser bank rates before. To be really clear, LendingClub is not a bank and they don’t offer FDIC insurance. If you lend, you could lose your money (although they do credit checks and report to credit bureaus). If you’re going to lend or borrow, I would start off with something modest like $100 and see how it goes. But I’m more excited about these innovative new models that cut out the middlemen and let us play around with small amounts of money. For me, it’s not really about the extra $20 or $200 I could make using these models, but playing around with a new model that seems interesting and promising. 5 or 10 years from now, maybe P2P lending will seem like a no-brainer.
I asked Renaud why anyone should use LendingClub. “Launching on Facebook was, for us, a way to make that point very clear,” he told me. “We want people to borrow and lend based on trust. You have networks, you have groups, and we can match people who are not only friends, but friends-of-friends or belong to the same network.” What kind of network, I asked? “Well, you have fellow alumni, people in the same geographical network, the same professional network…all of these things make you much more comfortable, that you’re not complete strangers.”
Renaud noted that if you lend a bank your money (i.e., put it in savings), the high-interest ones pay you about 5%. The crappy ones pay you 0.5%. But the banks then turn around and charge about 12% for personal loans, giving them a huge 7%-11.5% spread on your money. He added that the default rate for banks (or the amount of people that don’t pay back their loans) is less than 1%, “so why are they charging so much?”
What to do
A group on Facebook is running a promotion to get people interested in LendingClub. You don’t have to buy anything or even sign up (although I would encourage you to poke around). If we all join two groups on Facebook, we could win $5,000, of which I’ll give away $1,000 to a college-student iwillteachyoutoberich scholarship, $1,000 to a recent-grad iwillteachyoutoberich scholarship, and I’ll loan $1,000 on LendingClub and report back on how it went. I’ll keep the rest to pay taxes / save / travel.
Note: I’ve already set up an account through LendingClub and as soon as it’s verified, I’ll be loaning $500 through the site to test it out.
Here’s how can help iwillteachyoutoberich readers win $5,000:
1. First, join my facebook group, IWillTeachYouToBeRich P2P lending = reduce stupid bank fees
2. Then join the LendingClub facebook group
Note: You must join both! By joining both, they can see who sent the most people to the LendingClub facebook group.
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