Search Results for: lendingclub

I’ve been investing with LendingClub for over two years now. They securitize person-to-person loans so that you can lend money to other people in $25 increments, and you collect the interest after some fees. The stated interest rates are about 7-16%. On their home page, they boast of very impressive returns:

If you had invested $10,000 in Lending Club Notes in June 2007 (when we started issuing loans) and continued to reinvest your returns, you’d have made over 9.5% net annualized returns to date, outpacing a high yield corporate bond index, the NASDAQ, S&P 500 and even 1-3 year treasuries.

While I can only assume this statement is technically true, you have to remember that the way they state the numbers includes a lot of new loans that have not had a chance to “age” until maturity. LendingClub notes are all for a three year term. It would be more informative, in my opinion, to specifically look at the return of only loans that have completed. Since LC is so new, how about as old as possible.

For that, I go to the Statistics section. I should point out that the date range is for the origination date of the loans. The observation date is today. Accordingly, the default view of “Show All Time” shows every single loan from mid-2007 until today. Again, this includes a lot of new loans, many of which are impossible be classified as defaulted yet (must be 120+ days late). Instead, let’s narrow down the origination dates so we can look at loans of a set age.

June 1, 2007 to December 31, 2007
We’ll start with the loans that originated in 2007, their first year of operation. Even though these loans aren’t all completely done, they are the oldest loans available with an average age of about 2.5 years. Here are the average returns and average interest rates, sorted by credit grade:

Here are the average returns by loan amount:

The interest rates being charged (blue) are predetermined by LC, and as you’d expect they increase as credit quality decreases. However, the returns (green) are not what you might expect. Grade A loans appear to have performed the best, but other than that there is no real direct relationship between return and credit grade. I see no clear relationship between loan size and return, either. Most importantly, by visual estimate, the average return for all of these loans is only approximately 2%. This is way off from 9% returns.

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Wow… The last time I wrote about LendingClub was about 6 months ago. Since then, I haven’t really been keeping up with person-to-person lending, which in this case are unsecured credit card-like loans between individuals. Looks like they got a new logo and revamped their website! I kind of miss the old Halloween colors.

Lending Club Portfolio
Back then, I had 62 loans outstanding, of which 58 were current, one was 30+ days late, and three were paid off early. Today, my portfolio has 90 loans, of which 77 are current, three are 30+ days late, one was charged off completely, and 9 have already been paid off early. My current invested principal is ~$1,800, and I’ve received over $1,100 in payments already (principal + interest). The new loans must have been acquired close to October, as I don’t even remember the last time I logged into this account. I suppose that’s good in terms of it being a low-maintenance investment. 🙂

Performance & Commentary
In the last 6 months, my portfolio’s “Net Annualized Return on Investment” based on my interest payments received went from 9.14% to 4.45%. LendingClub puts me in the sad 12th percentile of investors:

What happened? Some bad loan-picking, perhaps some bad luck, but mostly age. The sharp drop itself is due to my recently charged-off loan and how their return calculation takes into account late loans. A “late” loan will affect your calculated return because you’re not receiving those monthly payments. On a $100 loan that might be $3.xx a month. But most late loans eventually turn into defaults. After 120 days late or so, LC will officially recognize the fact that you’ll never see the rest of your $100, and your return will suffer accordingly. Quick example – If you have 50 equal-sized loans, and two go bad immediately, that’s 4% of your principal gone.

As I stated before, if you have loans that are younger than 1-2 years old, do not expect your current return number to be your final return to maturity. One major reason why the advertised average return is so high, is that the average investor has very young loans in their portfolios. My oldest loan was issued back in December 2007. If you just look at the loans that are already 2 years old (full term is 3 years), you’ll see that the average return is only about 4-5%.

This doesn’t mean investors won’t still capture some risk premium for their loans, but I wouldn’t expect 9% returns over 3 years. This is not a low-risk investment, even though I still like the idea of making some fun and helpful loans. With much more data now available, I’ll be looking more into performance trends in a future post.

New Lender Incentives – Free $25 to $250 Bonus
If you are interested trying P2P lending with no risk, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

For those that have done their research and are willing to jump in with both feet, those that are willing to invest at least $2,500 at once and link a bank account can get a $250 bonus when you get a referral from an existing member. (Yes, you must actually invest $2,500 in loans.) Send me an e-mail if interested.

If you’re looking to borrow at LendingClub, it’s relatively straightforward. Give some information, and see what interest rate they offer you. Compare it with your credit card, Prosper, or other financing options. If you like it, fill out your application carefully (verify income if possible) and go for it. If you don’t like the rate or the full amount is not funded, you can either accept partial funding or walk away with no obligation.

Speaking of LendingClub, I saw that they now offer a IRA with no opening fees and no annual maintenance fees. Previously, there was a $250 annual fee. However, it does now require an increased $15,000 minimum opening balance, which essentially restricts it to a 401k rollover or the transfer of existing IRA funds.

Since P2P loan interest is taxed at ordinary income rates like interest from savings accounts, the ability to place them in a tax-deferred account is attractive. But since person-to-person lending is such a new asset class, I would hesitate to make it larger than say 5% of my portfolio, which would require a total portfolio size of $300,000. So, I’m out.

It is interesting that the custodian EntrustCAMA allows a lot of options in their Self-Directed IRAs like holding physical precious metals, investing in private small businesses, and investing directly in real estate. I’m not sure if you can only hold LC notes in this free IRA.

Here’s an update for my person-to-person (P2P) lending activity at LendingClub, which are unsecured loans between U.S. residents. It could be to help people pay off credit card debt, home improvements, business financing, or even buying a house. You can think of it as taking out the bank middleman, which pays tiny interest on checking account balances and then charges much higher rates to borrowers.

LendingClub Portfolio
I now have made 62 active loans with $1,680.08 in outstanding principal. Most are A grade, with a decent spattering of Bs. Keep in mind that a borrower has to have a 660 credit score as well as other additional requirements just to make their lowest G grade. (Only about 10% of loan applications are accepted.) Although they do have an automated service to pick for you, I tend to pick my own loans to try and find both a combination of good risk profile and also a person who I want to help out. It’s kind of a hobby of mine. Here is a screenshot from my account page:

Performance & Commentary
The good news is that out of my two previous late loans, one of them is now current again and the other one is on a “payment plan”. I am not sure if that means they lowered the amount due, or that they are just allowing a slower payback temporarily, but it is again showing regular payments (and contact) from the borrower. Much better than reading “left voicemail. left voicemail. we haven’t heard from them in 4 months…”. I have no defaults to date.

According to LC, my “Net Annualized Return on Investment” based on my interest payments received so far is 9.14%. As an investor, I would not expect this rate to be my actual rate to maturity, but so far so good. While my goal is to get a substantially higher yield than from a online savings account, it also comes with a healthy dose of risk. Don’t put your emergency fund here!

$25 New Lender Bonus
If you are interested trying P2P lending with no risk, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

If you’re looking to borrow at LendingClub, it’s relatively straightforward. Send in your information, and see what interest rate they offer you. Compare it with your credit card or other financing options. If you like it, fill out your application carefully (verify income if possible) and go for it. If you don’t like the rate or the full amount is not funded, you can either accept partial funding or walk away with no obligation.

Here’s an update for my person-to-person (P2P) lending activity, which for me are unsecured loans between U.S. residents. It could be for credit card debt consolidation, car financing, business financing, or even buying a house. You can think of it as taking out the bank middleman, which pays tiny interest on checking account balances and then charges high interest to borrowers.

LendingClub Portfolio
I do my P2P Lending at LendingClub, where you can loan as little as $25. You can read more background in my previous update. Although they do have a service to pick for you, I tend to pick my own loans to try and find both a combination of good risk profile and also a person who I want to help out. It’s kind of a hobby of mine.

I now have a total of 49 active loans with $1,548.42 in outstanding principal. Most are A grade, with a decent spattering of Bs. Keep in mind that a borrower has to have a 660 credit score as well as other additional requirements just to make their lowest G grade. (Only about 10% of loan applications are accepted.) Here is a screenshot from my account page:

Performance & Commentary
According to LC, my “Net Annualized Return on Investment” based on my interest payments received so far is 9.06%. The bad news is that I now have two late loans in my portfolio. One has negotiated a temporary reduced payment plan, while the other seems to be dodging phone calls. Also, one loan was paid off early. But I suppose this is par for the course, you get late payments and defaults. If your interest rate is high enough and you have enough diversification in loans, you’ll still end up ahead. We’ll see what happens, even with a default my rate of return so far is still higher than what I’d have gotten with an online savings account. But the risk is still certainly there for more downside.

What really baffles me is that both of my late loans are A-rated. According to the LC stats page, out of all the A loans issued so far, there are only 12 late loans out of 943 still active. That’s a tiny 1.3% late rate with zero defaults for LendingClub in general, and yet I managed to invest in 2 out of the 12 late ones. So either I’m very unlucky or I stink at picking loans, or… both. 😛

$25 New Lender Bonus
If you are interested trying P2P lending with no risk, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

If you’re looking to borrow at LendingClub, it’s relatively straightforward. Send in your information, and see what interest rate they offer you. Compare it with your credit card or other financing options. If you like it, fill out your application carefully (verify income if possible) and go for it. If you don’t like the rate or the full amount is not funded, you can either accept partial funding or walk away with no obligation.

I’ve been meaning to post some smaller updates about my ongoing experiences with person-to-person lending at LendingClub, but I decided to wait and roll them up into one larger post.

Current Portfolio
I now have a total of 32 active loans with $1,122.21 in outstanding principal. Most are A grade, with a few Bs. Here is a screenshot from my account page:

These are the loans that originated after LendingClub completed their SEC registration, which means I can sell these loans on the open market. I also have $91.91 in 4 notes that were pre-SEC registration (these are accounted for separately), all A grade.

Performance
All 32 loans are current, with no late or defaulted loans. I don’t think any have even gone temporarily late. According to LC, my “Net Annualized Return on Investment” based on my interest payments received so far is 8.80%. This is net of all fees. The oldest loans are about 16 months old now, almost halfway through the 3-year term. So far so good.

You can view the statistics for all LC loans here. This study states that as of the end of November 2008, lenders earned an average rate of 9.05%. If you are familiar with Prosper, you’ll note that this is significantly better than their stats. There are several reasons for this, in my opinion. For one, an A grade loan on LendingClub is a lot better quality than an A loan on Prosper. You need to have a 660 credit score as well as other additional requirements just to make their lowest G grade. Also, LC is much more stringent on approving loans. Only about 10% of loan applications are accepted. Their data verification system seems to be more comprehensive and weeds out a lot more questionable and/or fraudulent loans.

Loan Filters / Methodology
For the most part, I only lend to borrowers with a nearly perfect credit profile. I don’t use their PortfolioMatch tool, I handpick each of my loans. It doesn’t take very long; Here’s my basic search filter: A/B grade only, 714+ credit score, debt-to-income ratio < 10%, zero delinquencies, and 50% funding status. The high funding status usually means that the loan has already been approved, with LendingClub verifying enough application information. I check whenever I remember to, probably once every two weeks or so, and if I see something I like, I throw either $25 or $50 at it. My ideal borrower has a 10+ year clean credit history, a stable government job, and is just looking to consolidate debt into a lower rate. Paying 8% APR from LendingClub is a lot better than 10-20% from even the best prime credit cards, and new credit is harder to get now. I like the idea that they can clear out their consumer debt in 3 years or less. Open Market
You can now buy and sell loans, so there is no longer a fixed 3-year commitment. I’m happy with my returns so far, and have not yet tried to sell any of my loans on the open market. I do see that loans with a good payment history of 6 months or so are asking a 4-6% premium to outstanding principal, so it might be a feasible strategy to repeatedly find good loans and sell them after 6 months. You might be able to limit your exposure and still maintain a decent return. (Sellers pay a 1% transaction fee.)

Self-Directed IRA Option
In March, LendingClub announced that you can now hold their P2P loans in a Self-Directed IRA and get the tax benefits. The main downside to this is that you are subject to a $250 annual account maintenance fee. Unless you have a very large amount of IRA funds that you wish to commit to this, $250 is a big drag on performance (1% of $25,000, 5% of $5,000). However, you can also hold other things like real estate or physical gold bullion in this Self-Directed IRA, so it does offer additional flexibility.

Safety of Principal
With the new post-SEC setup, you are now technically buying notes from LendingClub. This brings up the question of what would happen if they went bankrupt. This was previously addressed in my Q&A with Rob Garcia, Director of Product Strategy. In addition to that, I saw on TechCrunch a couple months ago that LendingClub secured another $12 million in Series B venture funding.

$25 New Lender Bonus
If you are interested in lending, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

If you’re looking to borrow at LendingClub, my advice remains the same. Send in your information, and see what interest rate they offer you. If you like it, try and get a loan. If your full amount is not funded, you can either accept partial funding or walk away with no obligation.

Have an individual stock idea brewing the in the back of your mind? Perhaps the recent LendingClub drama has you itching to buy a few shares of LC at under $5 a share? Above is an interesting chart that shows the distribution of total returns for individual stocks when compared to the S&P 500 index (1989-2015). It was created by Longboard Asset Management, found via Abnormal Returns.

We analyzed 14,455 active stocks between 1989 and 2015, identifying the best performing stocks on both an annualized return and total return basis. Looking at total returns of individual stocks, 1,120 stocks (7.7% of all active stocks) outperformed the S&P 500 Index by at least 500% during their lifetimes. Likewise, 976 stocks (6.8% of all active stocks) lagged the S&P 500 by at least 500%. The remaining 12,404 stocks performed above, at or below the same level as the S&P 500.

I felt that this chart shows you the psychological risks of investing in individual stocks. I’ve been dipping my toes back into individual stock investing with a very small portion of my portfolio. My general idea is to invest in some high-quality, dividend-earning stocks and thus being able to earn those dividends without paying the expense ratio of an ETF. I’d also avoid some tax-efficiency issues if I am able to hold them for very long periods as opposed to a dividend ETF that keeps changing the components of their underlying index. Here’s one of my inspirations. In other words: Buy good stocks, hold them forever.

But as the chart above shows, some of your picks will do great, and some will do horribly. Some people will tell you about their “ten-baggers” and neglect to mention the losers, while the final math will show you lagging the index. As active investors, Longboard concludes that you should focus on avoiding the underperforming assets. But I’d be wary of being so careful about avoiding losers that they miss out on the winners. (The winners often look like losers at some point… can you say Apple?)

Even if you just plan on make a few trades here and here, individual stock investing is a mental sport that takes self-discipline and a calm rationality. Very few people have the characteristics needed, even when managing their own money with no management fee drag. Charlie Munger has his own take, but also admits that only a small percentage can add value:

I think a select few – a small percentage of the investment managers – can deliver value added. But I don’t think brilliance alone is enough to do it. I think that you have to have a little of this discipline of calling your shots and loading up – if you want to maximize your chances of becoming one who provides above average real returns for clients over the long pull.

[…] I think it’s hard to provide a lot of value added to the investment management client, but it’s not impossible.