Hedging with Lending Club II

by Rocket Finance

This the next in a series of posts about my experiences with Lending Club. I am especially interested in getting the best possible return on my money without placing the principle at risk – since most of my principle is the result of 0% balance transfer arbitrage. You may want to read one or two of the other articles in the series:

My foray into peer to peer lending

Intro: Hedging with Lending Club

Hedging with Lending Club I

First, a few details: Lending Club is offering a $25 bonus for all new lenders and borrowers – even if you don’t make a loan. If you open your account through this link and fund your account with $1,000, Lending Club with double the bonus to $50!

With all of the rate cuts lately, those of us who “borrow” money at the 0% introductory rates from the credit card companies in order to profit off of the interest are struggling to maximize our return. It is still profitable to do balance transfer arbitrage at the current 3 to 4% savings rates, but not nearly what it was like last year when it was not difficult to find liquid savings account rates as high as 6.01%.

A couple of weeks ago, I posed my first way to “hedge” your return using Lending Club, yet still keep most of your money liquid. A second way to maximize your balance transfer arbitrage with Lending Club is simply to lend out the interest that you earn each month. I am actually following this strategy to a certain extent.

For instance, using our hypothetical balance transfer amount of $40,000, we can generate an average of $100 per month in interest at the current savings rates. Simply take that interest, invest it at Lending Club and by the end of the first year, you will have lent out around $1,150 dollars at Lending Club and your total account will be worth $1,350. Some will be liquid from the payments that you will already have collected and some will still be in the process of repayment. All loans are assigned a three year term, and so, if you don’t lend out any more money in the meantime, your whole portfolio will be worth around $1,730 at the time of the final payment (assuming Lending Club’s medium return rate of 12.38%).

And I did not even include the $50 or $25 bonus that you can earn just for opening an account! Lend out the $25 bonus with your first loan and your final balance could be as high as $1,765. If you can earn the $50 bonus, your final balance will be over $1,800.

Not bad for never having used your own money in the first place

  1. 4 Responses to “Hedging with Lending Club II”

  2. By Odnal on Mar 6, 2008 | Reply

    I’m wondering if anybody has had success with the $50 bonus. I opened an account in my wife’s name a couple weeks ago, and completed the first $1000 balance transfer well over a week ago now. I got the initial $25 referral bonus, but have yet to see the other $25.

    Anybody know how that works?

  3. By rocketc on Mar 6, 2008 | Reply

    That is strange, I would contact LC immediately. I had no problem qualifying for the $50 bonus.

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