What is a lending club and how does it work ?

Lending clubs also refers to lending circles are networks of people who borrow money from each other on a rotating basis.  Yet each member pays the loan back on a rotation base. The loan is interest-free and can sometimes represent a very healthy amount. Specifically when the circle is very strong. As a result, it helps their members buy cars, make down payment for a house or completely pay for the house, pay tuition fees and run businesses.

Takeaways:

Lending clubs build financial inclusiveness and foster economic empowerment. In addition, they are thriving among immigrant communities. That is because generally those communities typically find themselves shot out from the traditional social system. However, because the model is entirely based on trust, members are carefully vetted and in some case, you must be co-sponsored or referred by an already member to join.

When to join a lending club?

Typically before you join a lending club, numerous steps have to be done.

  •  Have a goal: This is probably the most important aspect of the lending club. As a new member, they want to know what your goals are. You can join to help you buy a house, a car or to prepare for a vacation.
  • Members of the lending club: Never join a lending club if you don’t know anybody. Exceptionally you can pass through an agency. But make sure you trust and know each member very well. That is because you are building a strong community and relationship. If necessary do a thorough background check without any complaisance.
  •  How much is the minimum periodic contribution: The minimum period contribution is the amount of money you are supposed to contribute at every meeting.
  • Find out how many people: You need to know how many people are in the circle and appreciate the extent of your engagement.
  • The meeting period: This information is critical because it is associated with your commitment. Indeed at every meeting, you have to contribute the minimum amount required, be present. Also if you are the host depending on the type of program you might have to host all members.
  • Rules and regulations: it is important to read, understand and appropriate yourself with all the rules and regulations that govern the circle and how do you fit in?

Advantages of Lending circle:

  • Build wealth: Lending circles are not exclusively for people with no access to financial services.  In fact, most successful businessmen and women are all part of a Trusted lending circle.
  • Raising fund: The programs are a great way to raise zero interest rate fund hassle-free. Lending circles collect and lend from a hundred to thousands per day.
  • Empower communities: They help build, rebuild and improve communities because all members have the same motive and nobody is left behind.
  • Financial inclusion: The service provides banking services to people often shut out of the financial system because of bad credit or no credit. In addition, the program helps improves their credit score by reporting to the 3 major credit bureaus.

Inconvenient of a lending circle:

Like any venture, it comes with some drawbacks.

  • Lost of your money: if you happen to join a program with people who are not trustworthy. Everything you put in can be lost. You might lose a really big amount of money.
  • Untrustworthy people: depending on the power of the circle, people can really bring you a lot of trouble. Because you are essentially inviting them to your house.

How it works

  • The lending circle is formed between a group of people. The number is not set stone and it depends on the members.
  • The loan amount also depends on the members, there is no minimum amount. The members decide based on the quality of the members.

Case study:

  • Number of members: 4 people
  • Profile: all family members and relatives
  • Amount: $500 every month
  • Circle:  Every 4 months a specific person goes with $1500  that is $6000 per year. That is a loan giving away at 0%.

 


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