Thursday, March 4, 2010

Passive Income from Lending Club: Overview

In my continued quest to earn passive income, I am really glad I found Lending Club.

Lending Club is a peer-to-peer lending site where people apply for loans through Lending Club, Lending Club vets them and then it chops those loans up into $25 "notes" that people like you and me can purchase. Essentially, we are putting up the money for the loan and we get the repaid principal and interest. Lending Club takes 1% as its fee.

With the stock market having completed its bull run and looking to go sideways for the near future, this is the strongest return on investment that I've found. Plus: low volatility.  Currently I am averaging 11%, and the principal and interest is paid monthly into my account.

To give you an idea of how this helps: Say you invest $10,000 and are making 11% interest. You will be making an extra $1,000 a year after Lending Club takes its cut, paid monthly. This means that as you are trotting around the globe, you are getting an $83 a month paycheck.

In cheaper countries, like Cambodia, $83 is pretty much all you need.  In a country like Ukraine, that'll still cover half your expenses, meaning you can travel twice as long.

The drawback, of course, is that someone might not repay the loan, in which case you can loose the money you invested.  Although Lending Club says they have been able to fully or almost fully recover 40% of loans that go into collections, you are still risking your money.

I've gotten pretty savy with it, though, so there's more to come on how to maximize your return and minimize risk and loss.

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