Tough Economic Times Make People-to-People Lending More Attractive

Posted by Mike Smith :: March 4, 2008 @ 4:40 am

When things are going really well in the economy, even poor financial decisions can lead to generally positive results. Only the best ideas hold up when things take a turn for the worse.

There is certainly plenty of debate about the current state of our economy. Trying to digest all of the data is a difficult task. A few things are clear, though:

• Interest rates for savings have been decreasing as a result of repeated cuts in the Federal Funds Rate by the Federal Reserve

• The stock market has been in a general decline for a while now

• Investing in real estate is much less of a sure thing due to the sub-prime troubles

With these and other investment vehicles in decline, the relative worth of a strong people-top-people loan portfolio from Lending Club continues to grow. On Lending Club, the average annual performance of these portfolios is over 12%. Compare that to interest rates for savings accounts and CDs. Even the top direct banking companies, which tend to offer much higher returns than average saving accounts, are now offering returns below 4%. As I write this post, the Dow Jones Industrial Average has declined by about 8% for the year. Although real estate pricing varies widely with location, there are few areas that are seeing growth anywhere near what they were a few years ago.

All investments, including the ones discussed here, have their ups and downs. It may very well be that that the stock market or real estate market will take off again soon and become the best investment in the long term. The uncertainty of these markets makes predicting their movement difficult. The only thing that can be said for sure is that as the traditional investments become less attractive, the exceptional rates that lenders have been averaging on people-to-people loans from Lending Club look better and better.