Judging Club: Are You @#^&$*% Kidding Me??

Hey everybody! Today I am going to post about something I’ve learned from my newest investment venture, Lending Club.  It’s also a warning sign to those individuals out there who aren’t managing their finances.  I don’t mean in the I-Think-A-Roth-IRA-is-Better-Than-A-Traditional-IRA-so-You’re-Wrong type of financial mismanagement.  I mean the SOUND THE ALARM, ALERT THE TROOPS, THROW COLD WATER ON YOU type of situation.

Before I elaborate, let’s cover what Lending Club is.  This website facilitates peer-to-peer lending for individuals in amounts up to $35,000.  It’s ideal for someone who wants to consolidate credit cards, boost inventory in their small business, pay medical expenses, or make improvements to their home.  Every borrower must provide basic information and then the website posts the information for investors to review and determine which loans they want to invest in.  Once the loan is fully funded by investors, Lending Club performs due diligence to ensure the information provided was accurate and then the loan is issued.  The borrower then makes monthly payments of principle and interest.  Pretty cool, right?

Well, the best part is looking through the loans and finding those gems that make you want to purchase a flight, find the person, and shake some financial sense into them.  This, of course, isn’t possible, but it is fun to imagine.  My immediate response is to make up a story for the borrower that makes the loan somewhat reasonable.  However, some of these make that really hard.   Here is one for your viewing/reading pleasure:

lending club post 10.22.13

The borrower, Lacy, had always dreamed of her wedding day.  Never mind that she was rapidly approaching 40 and had only been on 3 dates in her life (and none of those were second dates, if that’s what you’re thinking).  When she found Mike, she knew that she had to make this one work.  Soon enough she learned that he had very expensive tastes.  Luxury cars, exotic vacations, and bottle service at the most exclusive clubs.  She made $209,000/year; however, she lived well beyond her means as it was.  So, in order to keep appearances up and get her *big day*, she opened eleven credit cards and used almost 75% of her available balance.   Mike thought that he found everything he wanted in a partner, especially since she was able to keep up with his fast-paced lifestyle.  One brisk October evening, he proposed and she accepted.  “This wedding has to be the biggest party this town has ever seen,” Mike said to Lacy.  And her parents would be paying, of course.  Except, little did Mike know, Lacy’s parents were beyond broke.  Like ramen noodles for date night broke.  So even though Lacy knew she had $75,000 in credit card debt, she signed up for a $24,000 (60-month) loan at 26% APR to fund their expensive wedding plans.  “One day,” she thought, “everything will just work it self out.”  I mean, combined she’ll only have $99,000 in debt, so it’s not even 6 figures yet, right? Right?

Do you see how crazy this situation is?  Even on Lacy’s high salary, she should be in debt emergency mode, not I’m-Going-To-Take-Out-A-Loan-To-Finance-A-Fucking-Party mode.  And poor Mike, I wonder if he even knows the debt that he’s getting ready to take on.  Now, I have no idea if this loan was issued or not, but I can guarantee you that it didn’t hit my portfolio.  Anyone who thinks that spending the first five years of marriage in debt from ONE DAY EXPENSES is beyond reasoning in my book.  So they don’t get my money.  Oh, snap.

Any variables that you would add to make this more reasonable?  Do you judge others based on their financial situations?  Make up fun stories for strangers?

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