Lending Club says its average loan is about $14,000 to a borrower with an annual income of $72,000 and a FICO score of 699.
Not everyone may invest. Generally, you must have an annual gross income of at least $70,000 or your net worth must be at least $250,000 (exclusive of home, home furnishings and automobiles). Some states impose tighter rules. Some don’t let you play at all, but that may change.
As an investor, you need to keep track of your earnings. For federal tax purposes, Prosper says, most investor-lenders likely will report earnings as ordinary interest income, but it advises consulting with a tax adviser for appropriate tax treatment.
When you buy a note, the platforms caution, you should be prepared to hold it until maturity. If you want your money out before the note matures, you need to find a buyer for the note from exchanges set up on the platforms, which charge processing fees.
Growth in peer-to-peer lending has drawn the attention of the big guns, hedge funds and other institutions. Their computer programs spot and often bid on the top-rated, most reliable-sounding loan applications, which can be funded within seconds after posting and shove you out of a good investment.
So services like Lending Robot have sprung up to help level the playing field. Lending Robot advertises no setup or exit fees and that it manages your first $10,000 of investment free and charges 0.45 percent after that. You link your Lending Club or Prosper account to Lending Robot and set up investing criteria such as loan term, borrower’s grade, or popularity. Its high-speed algorithms, it claims, then find loans, reinvest payments, diversify your loans, and spread your money around into many small amounts, theoretically reducing your risk of losses.
Bank on expansion
While Lending Club and Prosper both claim to cut out banks, one is really at the core of both operations. Loans for borrowers actually are made by WebBank, a Utah-chartered industrial bank. The bank sells the loans back to the platforms, which in turn sell you notes for your portions of the loans.
The notes are as worthy as the borrowers.
Lending Club recently announced a partnership with Alliance Partners, which manages the BancAlliance network, a 39-state consortium of community banks competing for loan business dominated by larger banks. BancAlliance members can offer co-branded personal loans to their customers through the Lending Club platform as well as purchase consumer loans and others for their portfolios.
Prosper in January purchased American HealthCare Lending, a financing platform that allows patients to sign up for payment plans to pay for behavioral health programs, fertility and reproductive clinics, cosmetic and plastic surgery, bariatric surgery centers, hospitals and physician groups, spine and neurosurgery centers, cosmetic dental offices and other healthcare facilities.
Even though the platforms are growing and there’s competition, you still lend peer-to-peer. Just remember to investigate the details before you get in on the action.
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