With the retraction of brick and mortar banking loans, P2P lending has become increasingly popular amongst both lenders and borrowers. LendingClub, the leader in P2P lending, announced today that they are introducing five-year Notes. Previously, the longest Note available was three years and neither Lending Club nor Prosper had ever ventured out just this far.
So what does an additional two years on a Note mean? Well, for borrowers, it means that if they choose to do so, their payments can be stretched out an additional two years. The amount of money borrowers would have paid back on a three-year term will be less than that of a five-year term, but the payments they make each month will be decreased in size. This practice is very common with other installment loans, especially if you are comparing a 15 year mortgage vs. a 30 year mortgage.
See how you can consolidate your debt with LendingClub or Prosper
Lenders on the other hand, will have an opportunity to increase their rate of return. As borrowers are paying more money back over the long-haul, lenders will be reaping in those extra funds. The downside for lenders is that of delayed gratification and increased risk, as the extra time will see lenders receiving smaller monthly payments and a potentially higher rate of default, simply because a borrower has two additional years to do so. If you find yourself needing the payoff on the Note faster, you can sell your Note to someone else on the open market: One of the coolest features in the Lending Club platform.
Details on the additional rate of return for lenders is as follows:
“Investors can now earn more interest by choosing 5-year Notes and receive 0.74% extra yield on B graded Notes and 1.86% extra yield on C through G graded Notes*, as compared to 3-year Notes. Investors also benefit from a lower annual impact of the service charge on their return: 0.45% on a 5-year Note vs. 0.71% on a 3-year Note on average”
Average rates of return that lenders currently see is already three to five times higher than any long-term CD can provide, so the addition to an even greater return simply solidifies LendingClub’s mantra. It was just a few months ago that Lending Club redesigned their site for a more friendly look and with the addition of a five year Note, they’ve made their case for #1 P2P lender.
LendingClub Investors: So if you have money to invest, you may want to consider helping out your fellow man and opening up a LendingClub account today. Depending on your comfort level, you can invest in very high or very low grade loans but make sure you remember, the higher rate of return, the higher the risk of default. 🙁
LendingClub Borrowers: If you are looking to borrow money, you now have 24 extra months (if you want them), which will make your payments smaller in size. LendingClub and Prosper have similar rates for low and high grade loans. But finishing off the edition to your house or paying off your credit card debt is now slightly easier with Lending Club, making them the best choice for P2P lending. And applying for a LendingClub loan is easy.