Lending Club

Lending Club is a social lending network that allows investors with funds to loan money to borrowers for up to 3 years. This is a great opportunity for lenders who aren't finding good returns at their banks as well as borrowers who are having a hard time getting banks to let loose of their funds. It is similar to Prosper.com however, the two social lending networks vary in a few prominent ways:

Lending Club only accepts 14% of borrowers as it doesn't approve those who have delinquencies, bankruptcies, a number of outstanding credit obligations, or a credit rating below 640 - Prosper.com does. Lending Club makes assessing a borrower's ranking easy by rating them anywhere from A1 to G5 on their rates and fee's table. These ratings help you understand the risk level involved in loaning to particular borrowers and by having so many levels you can easily build a very specific lending portfolio.

Rates for lenders start at a tempting 7.37% for great borrower credit scores and can be as high as 20.11% for very risky borrowers. Much like Prosper.com, Lending Club has a tool that allows you to create a portfolio based upon estimated returns and risk, as well as pre-sort borrowers based upon their credit score and DTI ratio. For these tools and the services provided, Lending Club charges borrowers a 1% service charge which is directly comparable to Prosper.com's fees.

Lending Club differs from Prosper in that if a loan is not fully funded for a borrower, they can opt to take partial payment of the loan which ensures that the lender's money is invested quickly; Prosper cancels the loan and permits the borrow to re-list. Both lending networks do all the work for you including employing collections agencies - Lending Club's agency charges 30 -35% of recovered funds, however it boasts a low 3% default rate.

Another great feature of Lending Club  for investors is that if you've tied up your funds and find that you need them at a later date, you can trade your notes for cash to other lenders. You can also buy notes from other lenders on their secondary social lending market, something Prosper is currently trying to establish.

You can read my review of Prosper.com here.

Prosper.com

PROSPER IS CURRENTLY UNDER A CEASE-AND-DESIST UNTIL THEY ARE PROPERLY REGISTERED WITH THE S.E.C.

Ask any financial advisor for general advice on how to invest your money and they'll say, "Diversify, diversify, diversify." While I'm not a fan of general advise, there is some validity to diversification. But... only as long as you're doing well within your diversification tools. Diversifying with a low yield tool is nonsense, that's just allowing your money to sit stagnantly.

A fun diversification tool that I've found to be prosperous is Prosper.com. I've been earning 9.95% with a conservative portfolio. Let me explain: Prosper.com is a "people to people lending marketplace." With the market downturn and banks adopting stricter lending practices those in need of funds have turned to this social lending site for loans. This is good news for those of us who have a little extra cash laying around and want to get more than a measly return from the same hesitant-to-loan banks.

It works like this: Prosper.com runs a credit check on each borrower and rates them on a AA, A, B, C, etc. basis. Each loan needs to be paid back to lenders within 3 years. They create a listing detailing how much they hope to borrow, their current monthly expenses proving that they can make the estimated monthly payments, some borrowers detail how the money will be spent, and Prosper sets an initial listing interest rate based on their credit rating that lenders will reverse auction down.

Lenders fund their accounts with cash they don't mind seeing in full for 3 years. You can choose a pre-set portfolio that has an estimated return or define your own parameters. Essentially, your "portfolio" is a list of borrowers you're comfortable lending to. It places your funds automatically as new, approved listings appear. For example, in my self-directed portfolio I chose to loan to borrowers that meet the following criteria: a credit rating of B or greater, a Debt to Income (DTI) ratio of 14% or less, less than 7 open credit lines, and a listing asking for $7,500 or less. I also set a minimum for each category of borrower, for example: For borrowers with an AA credit rating the lowest percent I'm willing to receive for my loan is 5%, but for B rated borrowers I'll accept nothing less than 8.5%.

Obviously the more risky the borrower, the larger the interest you will receive IF they pay the loan back in full and don't default. Prosper.com has great charts on the likelihood that each credit rating range will pay back the loan - I found it quite useful and used their research material to create my above-mentioned portfolio. I'd like to note at this point that I created a very conservative portfolio that Prosper estimated would yield around 5.41% per year, but currently I'm receiving 9.95% annually. So don't be discouraged or think that you need to loan to risky borrowers to earn a decent return on investment. Thus far there are more borrowers than lenders, therefore you've got the pick of the litter.

Prosper.com recommends that lenders only allocate $50 dollars to each borrower listing - therefore if you have $2,000 to invest you'll be funding 40 loans. This protects your funds in the event that a borrower defaults on a loan. Prosper.com offers two collections agencies to chose from and provides a record of their successes so that you can make an informed decision on who you'd like to employ. The collections process starts automatically once a borrower defaults, and if you are unsatisfied with the collections agency that you chose you can always change it.

If you find yourself in need of your funds back - you have two options. You can become a borrower on Prosper.com. Or, if you pause your portfolio, Prosper.com will stop lending on your account and as your borrowers make payments your funds will trickle back you along with gained interest. Typically a $50 loan will have around a $1.50 monthly payment back to you, so if you have 40 loans you'll be getting back about $60 a month available for transfer, not including earned interest.

I have found Prosper.com to be very lender and user friendly and have enjoyed great success even with a conservative lending portfolio - 9.95%. It is truly hard to find that kind of return currently without great risk.

You can read my review of another popular social lending network - Lending Club - here.

SogoElite

SogoElite is my first choice in brokers. For starters, they're cheap. They're real cheap. They're $2 dollar roundtrip cheap if you trade less than 200 shares at a time. Anything over 200 shares and its $.004 per share to get in and to get out. There's a $10 monthly data charge but you really can't beat this deal if you are a frequent trader. To get a better understanding, the commission schedule is proudly displayed on their home page: elite.sogoinvest.com.

Additionally, it has an easy-to-use platform that you download to your desktop, rather than the online interface most brokers use. I can short sell, buy to cover, buy, sell and execute after hours trades if I feel so inclined. I was a bit leary of the platform at first, but after getting started, I truly can't imagine how I'd operate with out it. Everything I need is there. The way I have it set up I can see monthly charts, daily charts, my watch list, and my currently owned securities all in one neatly organized window with to-the-minute stock quotes. I buy and sell on the spot through the SogoElite platform. I can see when my order was executed and watch its progress as soon as I've purchased it. The only regret is that I cannot see a percentage return on the securities I own - I have to crunch the numbers on my own to see if it's ripe for selling. But that's a minor complaint for sure.

One less-than-minor complaint is that the platform doesn't communicate immediately with the online SogoElite site. My trading activity isn't reflected on the online account history or the account activity panels for 24 hours. Considering I keep a meticulous journal of all my trades this grates on my nerves if I forgot to write down my purchase and sell prices. I have to wait until the next day to journal my wins/losses. Again, there's always a work around - write it down or wait a day. Nevertheless, it is a strange delay.  

SogoElite has a number of customer support methods; video tutorials for every facet of the platform, a toll free number, and 4 separate e-mail support accounts. I find the e-mail support a bit cumbersome as it takes a few hours for a response. That's understandable considering the nature of e-mail, but nevertheless I prefer the toll free number as I rarely have to wait for a customer service representative. Despite it being a discount brokerage firm, I haven't received "discount" service at all. You won't have to worry about getting help after you've signed up for an account. All around, I've been very satisfied with SogoElite and would recommend it to any trader who has at least $2,500 to play with. (If your funds are a bit more limited, try its sister company: sogotrade.com. It has an online interface and a lower minimum.)

FOR MAC USERS:

One caveat which I've found a way around is that the platform is not compatible with Macintosh computers. However, I simply downloaded the Apple Bootcamp which allows me to run a PC on my Mac - at start up you just pick PC or Mac (easy!). If you call and ask customer support, they will tell you that the platform does not work on BootCamp...but it does. They're simply not able to guarantee that it will work but mine has been operating fine for over a year.

Compare SogoElite to:

Just2Trade

SogoTrade

Zecco

See the Commission Structure Comparison

Last Updated 12/8/08