Prosper vs. LendingClub Investor Returns 19.5 Month Update

In November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see updates here and here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.

My last update was 4 months ago, so here’s what things look like after 19.5 months.

$5,000 LendingClub Portfolio. As of June 15, 2014, the LendingClub portfolio had 180 current and active loans. 51 loans were paid off early and 15 have been charged-off ($314 in principal). 6 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $2,679 in uninvested cash (early payments and interest). Total adjusted balance is $5,368.

$5,000 Prosper Portfolio. My Prosper portfolio now has 157 current and active loans, 78 loans paid off early, 23 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$89). $2,434 in uninvested cash (early payments and interest). Total adjusted balance is $5,322.

Recap and Thoughts

• The fact that institutional investors are buying a significant portion of Prosper and LendingClub loan inventory would seem to prove that the concept is successful. If I were to invest all over again, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free auto-investment at LendingClub (no minimum at Prosper). But simply put, I am not in love with P2P loans enough to allocate my precious IRA space to them.
• My total adjusted balance is $10,690, which actually shows a slight recovery from my last update in which my total balances were actually dropping. At least I’m still headed to a final balance higher than a savings account. My idle cash is starting to pile up though, so I will take $2,500 out of each account soon and put it elsewhere.
• Prosper says my annualized returns are actually 5.76%. But just 4 months ago, they said I was earning 7.55%. The lesson here is that your returns will continue to vary and likely deteriorate as your loans age, so don’t assume your returns will always stay the same as they are in the beginning (your returns will look good for a long time if you keep reinvesting into new loans). LendingClub says my annualized returns are now 5.94% (5.24% if you assume all loans 30+ days late will be total losses). Not awful return numbers so far in this low-interest rate environment, but less than I would have hoped for.
• Prosper is still doing worse relatively than LendingClub. This could change again in the future. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances over these past 15.5 months: