I have been reviewing through a large number of Lending Club loans and noticed some humorous descriptions of the reasons why people want the loan. These should serve as advice for anyone who is planning to write up a Lending Club loan application. Remember that most all lenders are investors and want their money back with interest. The main reason that people loan borrowers money is not because you need it but because they believe that you can and will pay back the loan.

Loans are similar to requesting a tourist visa to come to visit the US — the person deciding whether to give the potential visitor the visa wants to know the reason you want to visit mainly to see that it is reasonable. The main thing that they want to know is that you plan to return to your country after you visit.

• You need to say SOMETHING in your loan reasoning. Loans numbered 76775, 89258 have the description field left entirely blank and even the subject line does not give any indication of what the money is for. Loan 76775 was not funded but the other one was.
• A loan should not be an income supplement. “I just need something that can help me supplement my income a little” People do not loan you money for your day to day income. If you cannot make your current obligations, how are you going to pay off the loan? Loan 74288 was not funded.

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This is the second post in a series on my recent experience applying for mortgage refinancing.

While applying for mortgage refinancing, I asked the loan officer for credit score wisdom based on her experience. I knew most of the advice but I found some of her comments interesting so I’ll post the collection of advice, tips, and cautions:

• A hard credit pull negatively impacts your credit score. A hard pull is a loan application that would result in credit if approved. If you check your own credit, it is a soft pull and does not effect our credit score.
• Check your credit score three times per year for Read the rest of this entry »

This is part one of a series of what I learned by talking to a mortgage broker last week.

I stopped by my credit union to check into refinancing my mortgage last week. The rates were low and with the likelihood that the fed was going to drop rates again, I decided this might be a good time to refinance from a 30 year fixed to a 15 year fixed interest rate mortgage.

I asked the mortgage broker many questions about the current mortgage market. She passed along some interesting information including the details about Read the rest of this entry »

I returned to the Zopa lending site today for a second impression after my initial review of Zopa. I noticed something that knocked my socks off about Zopa’s business model of social lending — some borrowers are not paying interest after receiving “help” from lenders. In fact, some borrowers are “paying” negative interest at Zopa! In other words, they are receiving money for having borrowed money. This is an amazing development in P2P lending!

The proof in the Zopa homepage screen shot below. I cropped out part of the screen (red line) to make the graphic smaller and added three blue checks to show you the borrowers that I am highlighting below as examples. Click the thumbnail below to see it in more detail.

The three borrowers that I am highlighting (blue checks in graphic) are:

1. TinaM who is borrowing $5,000 to go back to school with a started interest rate of 9.99%. Currently TinaM is receiving help of $70.
2. wlaffin who is borrowing $5,000 to pay off credit cards at a stated interest rate of 12.99%. Currently, he is receiving help of $66.
3. Rugsaq who is borrowing $10,000 to grow his transportation business at 12.99% stated rate and is receiving help of $70.

Note that the links are to the profile pages which do not include the loans and the help amounts. The loans, interest rates, and help amounts are listed in the graphic above.

Calculating the actual interest rates…

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As I browsed Prosper loans, I was surprised at the number of community members who would like to use their good credit score to borrow money in order to reinvest the money in other P2P loans. This is called leverage and by definition it does increase risk. Is it a strategy that is likely to payoff?

The borrow-to-lend strategy was referenced before in an article on OmniNerd. As of this posting on the Prosper website, LeedsGirl (AA credit) is looking for $2,500 to reinvest in Prosper loans. Bpyatt is asking for a similar loan for $10,000 at 11%. MoneyDoc99 (AA credit) is borrowing money to reinvest as part of a Doctoral project. The list of people doing this goes on, and on and on. In fact, at least 5 of the 25 people who appeared on the first page of loans were lenders borrowing to reinvest in prosper loans. Another person on the front page is reinvesting in the Chinese stock market. The funniest part is the text of this loan request, which is already completely funded at 12%. Engle writes in his loan request:

I recommend this investment to anyone with $5,000 USD sitting around. The USD will continue to depreciate in the next few years… Since I do not have the capital to readily invest in foreign markets, I am request this loan to fund my “riskless” investment in the Chinese currency and market.

It sounds like he would also recommend this investment to anyone — even if they do not have $5,000 laying around to invest. I would certainly not call the investment without risk. If it was a “riskless” investment, it would pay the same rate of return as a US treasury bond. Maybe he forgot about the Asian financial crisis which occurred only about 10 years ago. I would question anyone’s investment acumen who calls an investment in single market on borrowed money “riskless.” Personally, I have been increasing my stock percentage in foreign funds due to the likelihood that the dollar will continue to depreciate, but it is certainly not a strategy without risk.

I am calling the strategy Borrow-t0-Lend, but many of the people on Prosper trying the strategy label the practice “Borrowing to Reinvest.” Other lenders call the people who borrow to lend “Blenders.” So is it a good idea to use your good credit score to lend to others with a lower credit score? Read the rest of this entry »