I’ve been investing in people through social lending for a few years now. I was recently reminded of how happy I am with my investments through lendingclub when I received my last statement.
That’s almost 18% return on my investment!
For a closer look at my investments, you can see the status of my notes:
As you can see, I have a total of 43 notes. 4 have been fully paid off. None have defaulted, though 3 of them are late. Just so you know, the 3 late loans are all on a payment plan, so those people are still paying me on their loans.
I hope these stats help you feel more confident about investing in social lending for those of you that have been hesitant. If you’ve been afraid of losing your money through defaults or charge offs, you can see that they happen much less frequently than you might think.
Part of this is because Lendingclub does a really good job of screening their loans for approval. They make sure that you are investing in high quality borrowers with a thorough check of their finances before approving the loan. That’s why I use them and I personally recommend using Lendingclub.
However, I also believe I have a good system in place for picking my investments. Above and beyond simply looking at the raw numbers, I’ve been using the power of social in social lending to help me pick better investments.
My Quick and Easy Social Screening Method
It’s actually quite a simple method. Lendingclub offers a question and answer portion in the borrower information screen.
So, here’s an example of a typical borrower’s information:
Now, you’ll see that there are two green arrows on the form. This is to signify that the loan is approved and the gross income has been verified by official tax documents. Of course this is very important information. The fact that gross income has been verified tells you right off whether the person is able to make their monthly payments.
However, I don’t stop there. Right below this information is a question and answer portion of the borrower information. That’s where you, the lender, can actually ask questions and see how the borrower responds.
That’s the social part of this form that I’m interested in. More importantly, I want to see how the borrower answers the questions. Frankly, how the questions are answered are more important to me than the question itself.
- Does the person appear to care about this loan?
- Are they providing full thoughtful answers?
- Do they seem responsible about their money?
- Are they treating your questions with respect?
Believe me, you can really get a sense of the person by their tone and how they answer their questions.
The idea is that I want to get a sense that you really care about the money that I’m loaning to you and you will be responsible about paying me back. Generally, I’m looking for more than one word answers and a thoughtful breakdown of your financial situation. Also, I’m more impressed if the answers appear polite and respectful as well.
Here’s a couple of samples of answers that I like:
Great answers! One thing you’ll notice is that this person is exceedingly polite. He even thanks us for asking the question! This is someone who is thoughtful and respectful. I get the sense that this person will care about my money and will be considerate about making sure he is paying us back timely.
This seems to be the type of person that has a good sense of empathy and responsibility. I like this borrower and would invest in him.
Here’s another example of some good answers:
You see how this person really breaks down his numbers. This person seems to be on top of his numbers. They can explain how their budget breaks down and give you individual interest rates of everything. I figure a conscientious person like this is less likely to default on their loan as well. They seem to be really good about their budgeting.
Now, I’ll show you an example of some bad answers:
These are the type of answers that tell me very little about the person. They are essentially one word answers that show very little thought. Even the longer answer that they give only gives me the sense that they are simply saying, “Please give me some money.”
Not only that, you see how the question about monthly expenses was asked twice. That should have given a hint that people are looking for a more in depth answer. This person had a second chance to give a better answer and completely missed it!
This person doesn’t appear to give much thought to where the money is coming from. I can’t tell if they would be responsible with my money or squander the loan and end up defaulting on it. Even if their financial information looks good, I would be very hesitant to invest in this loan.
Who Would You Give Your Money?
The reality is that a rich man can be completely irresponsible and simply decide to stop making payments on their money. A poor man can have a high sense of responsibility and do everything in their power to ensure that you are paid back.
The power of social allows you to try and figure out which person you are investing in.
Just think, if these people were coming in for a job interview and they answered your questions these ways. Which one would you hire?
These questions and answers allow you to tap into the social aspect of social lending and really filter your investments for the most responsible borrower. It gives me the ability to look beyond the numbers and look at the person.
I don’t know if my method is perfect. I can only tell you that I’ve been investing in this manner for over 2 years with lendingclub. I have 43 loans and none of them have been defaulted or charged off. All of this leading to a great annualized return rate of 17.78%
Are You Ready to Start Using the Power of Social Investing?
Each month, I’m more and more impressed with the power of social lending. I think that Lendingclub does an awesome job of screening their borrowers and providing the information needed to make an informed decision on their investment.
If you’ve been hesitant to invest in social lending, I hope that my numbers have helped you feel more comfortable.
I definitely recommend lendingcub. You can start with a small investment, since the minimum loan amount is only $25.
You can open an account with a minimum amount and see how my social screening method for picking investments works for you. If you are having good success with your loans, then you can invest more later.
However, I think lendingclub provides an awesome opportunity to invest and make your money grow.