Brian and Bo evaluate an alternative way to borrow and lend money in this week’s show. They get into the nitty gritty of peer to peer lending, as well as, the real estate research website Zillow. Brian shares his personal experiences with peer to peer lending using the Lending Club website.
This week’s Money-Guy Distraction:
Before we get into the podcast stuff you have to go over to YouTube and check out Ella Sings Elvis. You’re going to love it, especially if you have kids.
Peer to Peer Lending:
Since 2008 it has been hard for individuals to find personal loans. This has created a tremendous gap in personal finance, and from this void came a new category of lending known as peer to peer lending. It is essentially an online system that allows you to meet with your peers to borrow and lend money.
Of the different websites that are available, our experience has been with the Lending Club. As a background to the sites success here are some analytics:
- Last year’s private offering valued the company at $500 million.
- Google just invested $125 million in Lending Club; which brought the current value to $1.55 Billion, with a B. Talking about a return on investment, wow!
- They have loaned: $2.2 Billion since their inception in 2007.
- 80.66% of loans are used to consolidate debt.
- Last month $174 Million was loaned through the site, which puts them on track to outpace their total lending in one year at that rate.
- They make money by service fees through both borrowers and lendors.
- Lending Club has paid interest of $193 Million to investors.
- 1 month average annual interest rate: 14.79%
- 36 month average annual interest rate: 12.98%
- 60 month average annual interest rate: 17.89
The Money-Guy’s take on the Lending Club:
- Positive: We like the investment side as a hobby (note we did not say primary investment) because there is tremendous flexibility. You can loan as little as $25 and up to $5,000 on an individual loan.
- Brian is set to make 15.64% on an annualized basis, but realizes that this will not likely hold up because of potential loan defaults.
- Downside: A lot of the loans do not get filled, not everyone will get approved for a loan. There is also a risk of default.
- How you should use lending club: This is not for your emergency reserves, or to be treated as a primary investment. It is very speculative, so consider this fun money or a hobby that you can make money with. Treat it as a very illiquid investment as the loans are set at 36 or 60 months. This is a brand new category of investing that we have not included in any of our portfolios.
- What does the future hold? This market could mature to the point that it is a part of your retirement system. (i.e.): like a pension or annuity.
Switching gears over to the popular real estate site Zillow.com, this site is an awesome resource. They break things down with easy to use calculators and they can provide local quotes for your entire home buying needs. The features that we like particularly well are the:
- Affordability Calculator
- Fixed vs. Variable Calculator
- Should You Pay Discount Points Calculator
- Closing Cost Calculator
Another great resource that we have mentioned a lot in the past is Bankrate.com. They have very helpful tools that relate to this podcast. Be sure to check out the links that we have provided and we will be back in two weeks!!