I finally got around to updating Quicken over the weekend, so I thought I’d put together another update of Lending Club investment performance, this time covering through the end of May. I neglected to note my net annualized return (NAR) at the end of the month, but it was in the mid-8% range. According to Quicken, my real-world return was through the end of May 2011 was 8.30%.
For background, I’ve been using Lending Club for a little over two years now. As of my last update, my portfolio looked like this:
- 363 loans were current
- 64 loans had been paid off
- 4 loans were 16-30 days late
- 13 loans were 30-120 days late
- 8 loans had defaulted and/or been charged off
As of now (technically, at the end of May), it looks like this:
- 336 loans are current
- 88 loans have been paid off
- 2 loans are currently 16-30 days late
- 13 loans are currently 30-120 days late
- 13 loans have defaulted and/or been charged off
As you can see, I’ve suffered another five defaults and have had some additional loans go late, such that I have a similar number of late loans now (15) as I did then (17). If you total up the two reports, you’ll notice that I’ve invested in 452 notes total, and haven’t recently added anything to my portfolio.
The lack of additional notes is by design. I’ve been too busy to put enough time into picking notes, and I’ve also been less than thrilled with some recent changes to the lending platform, so I’ve stopped putting in new cash, and have also been pulling any cash that accrues out to our savings account.
Given that the average age of my portfolio is still increasing – especially since I’ve stopped adding new notes – I expect to see the default rate continue to creep upward. At the same time, I expect my returns to drift downward. That being said, I’m fairly happy with my current returns.
What about you? If you’re a Lending Club investor, I’d love to hear about your experiences.
Hi All,
I just invested $1200 in lending club. I invested half using the automated tool (low risk). The other half I invested manually at medium risk.
I’d be interested to know what returns per month other people are making.
thanks, Paul. I figured that out after I wrote my post but you still have to open each one separately and click again to see the specific credit chart. It would be nice to be able to do this in a single click on the list, or to be able to download all the data. If you have several hundred loans, it can take forever. And many of these credit ratings take a minor hit when these borrowers get their LC loan funded because they increase their debt, buy a house, or whatever.
To Craig. An easy way to see the credit score changes on all of your notes is to open the trading platform, open up your notes available for sale (just as if you wer going to select some to sell) and then sort on the column that indicates the directional change in credit score.
to Charles and those who limit themselves to funding smaller loans, according to LC stats, the bigger the loan, the lower the default rate.
Maybe people with greater financial resources have less need for smaller loans, whereas people who can’t come up with a few grand in a pinch are a greater risk, living closer to the edge of insolvency.
Excuse the duplication, but I posted this in last year’s update before seeing this one and I thought this is more appropriately a 2011 post. It describes what I’ve learned between my first portfolio opened 10 months ago and a second (IRA) I opened 6 months ago. I changed my strategy based on lessons learned and I think it’s working for me. Of course, both portfolios are relatively new so I expect defaults to grow, but I hope I’ve found ways of minimizing that risk:
I’ve got two accounts, one regular, one IRA. I’ve been trading in the regular account for 10 months and have a 10.42 return with 107 notes of which 1 defaulted and 3 more are late. When I purchased a lot of these notes, I didn’t pay much attention to credit scores and I think this has increased my default rate. I also was lax in reinvesting returns. Now I reinvest as soon as my balance reaches at least $25.
I started my other portfolio in January. It has 139 notes and is returning 13.09%. Most loans are B and C. So far, no defaults. I had one note go late. The borrower resumed payments but I sold it just to be safe. I do not invest in any note where the borrower has lower than a 714 credit rating, where the interest rate is less than 10%, and where they have been employed at their current job for for less than 3 years. I investigate their employer to ensure that it is a stable or growing company in a stable or growing industry. I prefer homeowners to renters. If they are consolidating debt, I reject anyone who is refinancing cards at a LC rate that is higher than their card rate. Finally, I read their posts to make sure they are doing something I find rational. If they haven’t described why they’re seeking the loan or if they’ve answered no questions, I pass or ask questions of my own for future reference. I think this system has significantly reduced my risk of defaults, but of course the portfolio is only 6 months old.
I also filter only loans where income has been verified, but I think this is more superstition than common sense on my part. According to LC, unverified loans actually have a lower rate of default, primarily because most of the incomes LC verifies have been checked because of some red flag in the application.
Is there some way of tracking loans where the credit rating drops without opening them one by one?
I have a number of loans. My return, after conservatively discounting for all late and discharged loans is about 9 percent. Paradoxically I look at LC not so much for return as for preservation of capital. If I gross $100, I lose 25 to defaults, 25 to income taxes, and 25 to inflation; thus my real, tax and inflation adjusted, return is only about 3 or 4 percent, but with a bank CD I would *lose* 2 or 3 percent a year, in ten years one-third of my purchasing power ‘money’ would be eaten up by taxes and inflation; LC helps here. Like the other responder I hate early payment defaults. I have one loan where the borrower said that even if he lost his job, he had several months of emergency savings – but he defaulted *immediately*, not even one payment, and quickly filed bankruptcy, in my opinion pretty suspicious. But, hey, that’s just business – as long as the default rate is equal or less that LC projects, then the higher interest rates among borrowers in general protects the investors – the loser is not the investor but the good borrowers who pay premium interest rates to make up for the defaulters. Bottom line: In a fed engineered negative real interest rate environment might as well take some chances than settle for a guaranteed loss.
I have had a lendingclub account for a while and the site says my NAR is %12.21 on all my hand picked loans. Sadly I had been doing well with no defaults on 23 loans but now I have two heading towards default. I’m also saddened by lendingclub’s choice to limit questions. Honestly I had thought about putting part of my rollover IRA into Lendingclub (about $20k) but with the new changes it just seems too risky. The loan quality seems to be going down and the lack of information in the loan requests seems to be progressively worse.
I hand-selected all my notes with most being A’s and B’s and a few lower graded ones. Always chose verified income, time on the job – pretty conservative.
I don’t like the new control over the types of answers we get from Lending Club now. And, in particular I don’t like that I’ve recently had some defaults within the first two payments. Now, I consider that fraud and these were B-rated loans. People filing bankruptcy right after taking out the loans – or being skips. I think Lending Club is not doing their job in checking out these borrowers on our behalf.
Is anyone doing Prosper? What’s your experience?
I’ve looked at them – and they do provide more info on the borrower. They also give you more info on the default rates for each level of loan.
Oh, just realized the 1099-OID only list the loans and Lending Club sent one 1099-MISC but since the IRS computer couldn’t relate all those loans to one 1099-MISC, they decide to audit. So it’s not Lending Club’s fault, but still not fun.
They provide the IRS a 1099-OID on your earned interest but don’t send you one in the mail. I only found out about it when I got audited by the IRS.
Not a very nice thing to do your customers LendingClub.
@Harry, Paul is right about the 1099 issue. I have about 500 notes in my taxable account (I also have an IRA account where my new investments are going) and working out my exact tax liability took me about an hour.
But regardless of the hassle I think all Lending Club investors should consider the IRA option. It is simply the best way to invest in p2p lending and something all investors should consider in my opinion. Then you won’t have to worry about taxes at all.
@Harry…you get a 1099 for any individual note that pays you more than $10 (I think) in interest during the year. Also, for any bonuses earned on deposits. Other than that, you are on your own to honestly claim the interest income. Not a big deal at all.
I have a lending club account with approximately ~$500 in it. I am weary of putting in more because I have heard there are some complications with taxes. They don’t send you a 1099 do they?
Nearly 19 months as a Lending Club investor. About 600 notes. Two defaults so far, plus one each at 16-30 & 31-120 days late. LC has my return at 9.98%. I have it at 8.81% To reduce the trauma of a default, I “reserve” 25% of interest earned to cover defaults. I am very over “reserved” but the actual return after reserve is a solid 7.00%. I do miss the free form questions & answers but I do keep investing. The 1.5% bonus on scheduled recurring deposits also helps. I plan on continuing investing.
I’ve had terrible results with lending club. I had some notes default early on putting my return into the negative category. I am taking all money out as I can.
Overall it was a good learning experience. One has to realize these are all completely unsecured loans to some who are very unscrupulous.
I found that putting my money into a netspend savings account and getting 5% consistantly was much better for me. I can put money in when I want and I can take it out whenever I want. It’s a 5% interest bearing savings account.
8% is great return! Why not keep reinvesting the money? Seems kinda crazy (unless you need the money) to move money from an 8% return investment to a 1% interest rate account. I wasn’t happy about their change about the questions to borrowers, but honestly, I have now learned to live with it. I am actually faster when it comes to investing because I only invest in loans I like without having to ask any questions. I also spend less time thumbing through so many apps asking questions that frankly, all it did was get me more involved with the borrower, and less focused on the high level investment picture. All in all, still making a solid 8.6% with nearly 1,000 notes (after 2 years)
Nickel,
I know you’re busy and not spending as much time on this, but have you considered selling troubled loans on the secondary market before they get to the point of defaulting?
I’ve kept an eye on my loans and watch for any that start to show a declining credit score. If they start slipping too much, I sell them off at a discount on the secondary. I figure a small loss on the sale is better than losing the whole loan to a default.
I don’t have a lot of loans (40 now), but I’ve successfully stayed away from any defaults in my 18 month career. I know this isn’t enough data to make a positive correlation for this method, but it’s an idea to try out.
I have 40 notes current, 1 paid off. I had one that was a bit late paying, so I ended up selling it in the Folio trading platform. My NAR per the site is 12.33% and I’ve been doing it for 2 years so far, increased number of notes mostly in the past year.
I’m also treating it like a rotating CD, which a small amount matures every month in case an emergency came up. I stay away from the 60 month loans because the terms of them state if the person owes after the 60 months, LC has no responsibility to collect. I stay away from $15K+ loans as well, smaller the better in my opinion.
I have still been putting new cash in. I currently have 12 notes current, 1 31-120 days late(on payment plan) and 3 paid in full. My NAR per the site is 11.73%. All of my notes have been hand-picked. I have been getting partial payments on the one late note, but I’m not very confident that it will get back current. It was a grade D note.
I was also not happy with the changes recently. 60 month loans are quite a long-term investment for something like this. I generally avoid them unless there are no good 36 month loans to invest in. I typically steered clear of the $25,000 loans even before they kicked it up to $35,000 max.
I treat my account as something like a 3rd tier emergency fund. I have some savings in reserve in case of immediate need, but my LC account can provide a small income over time if needed. The longer I invest, the larger that potential income is. If I never need it and it’s still there in 20 years, I might use it to fund a couple years of retirement while I’m in my 50s.