Posted by Mike Smith :: November 12, 2008 @ 6:29 amPerson-to-person lending has been a real phenomenon and has allowed both borrowers and lenders to get advantageous rates. The only real downside for lenders was a lack of liquidity, an issue that was recently addressed with Lending Club’s $600 Million SEC registration.
Traditional P2P lending models arranged for borrowers to repay lenders over a fixed term, typically 36 months. While lenders were getting above-average rates of return, some of their money was tied up in the process. Although they received regular payments on a monthly basis, they couldn’t get at their invested money. By establishing a secondary market for the notes bought and sold on Lending Club, everyone wins.
Lenders Needing Cash
Imagine you lent $500 across 20 notes averaging 10% interest today. You could expect to receive $16.13 every month for the next 36 months. What would happen later if you suddenly had an unexpected expense or an event caused your risk tolerance to change? You might wish you could cash out your monthly $16.13 for a lump sum payment at that time. Lending Club’s new features allow you to do just that. The price you can get will depend on market conditions.
Lenders Looking For New Notes
Lenders seeking new notes benefit in a number of ways. First, the number of notes available for funding will increase with a secondary market. You will be able to fund not just active new notes, but also those offered on the secondary market. New investment strategies can also be employed to seize profit opportunities by helping out people in need of cash who are trading their notes.
Borrowers
Liquidity for lenders can benefit borrowers as well. The risk of having to hold a note for 36 months is reduced for lenders who participate in the secondary market. Lower risk for lenders means they’ll be more willing to lend, and borrowers may be more likely to receive funding as a result.
By adding liquidity to P2P lending, Lending Club has positively affected all of their users. Borrowers are more likely to receive funding and lenders have increased options for new and existing tradable notes. I am excited about this new feature and encourage prospective lenders to check it out.
2 Comments
As a new lending member to Lending Club and limited at this point to only being able to purchase notes on the trading platform, I have a question. It seems to me that all of the notes that I have seen listed far are all 36 month or new loans. I even see some that have an origination date of today. Aren't there any that are older? Is there a distinction between loans made before the SEC registration and those made since then? Jane
Yep – only notes issued after October 12 (when the SEC registration became effective) can be sold on the Trading Platform.
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