Interest rates are going up! Sort of.
Worry over the Fed raising short-term interest rates has caused a sell-off in U.S. Treasury bonds and other fixed income. That drove interest rates on the 10-year Treasury bond higher, from 1.80% to 2.10%, in a matter of days.
While that’s a huge move in the world of bonds, it barely rates a yawn from individual investors who have suffered with almost no yield for half a decade.
Since the financial crisis, it’s been tough for people trying to live on interest and dividends. They’ve had to seek out new sources of income while trying to balance the risk of loss against the opportunity for cash at every step.
In this environment, Lending Club (LC) — an online marketplace for loans — gained national prominence as a meeting place for individuals wanting to borrow money and those wanting to make loans.
For those not familiar with the organization, it’s a peer-to-peer (P2P) loan agency where individual investors can pick and choose which loans to finance. It comes with cheaper interest rates for borrowers than they could get elsewhere, and often high single-digit returns for lenders. Now that’s a win-win.
In effect, the company allows people to be the bank for those who are shut out of the traditional banking world.
Need $521 to fix your car? Write it up and submit it to Lending Club! The company screens borrowers so potential lenders can assess each application before putting any money up, and even assigns them a rating.
Yields on such loans range from roughly 7% for good borrowers to more than 15% for risky debtors. Lenders can even build a portfolio mixing and matching types of loans, quality of buyers, etc. Don’t like the looks of one loan? Pick another.
For anyone seeking more income, this business is very attractive… so attractive that it caught the attention of institutional investors.
I don’t mean the small banks who use Lending Club as their gateway to consumer loans, which I’ve previously covered. We’re talking about hedge funds, big banks, and other large institutions that are now prowling around Lending Club’s website, looking for good deals.
