LendingClub: My P2P Loan Portfolio Update (+Bonus)

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.

Comments

  1. Sanders from Atlanta says:

    Attached at the bottom is an excerpt from their terms, am I reading this right that you must have an annual income of 70k or a networth of 250k to lend money/purchase notes. Any thoughts on this?

    6. Your Financial Suitability Acknowledgments, Representations and Warranties. You represent and warrant that you satisfy the applicable minimum financial suitability standards and maximum investment limits, as set forth in the following sentence (or as set forth in a supplement to the Prospectus for residents of the state in which you reside), and you agree to provide any additional documentation reasonably requested by us, as may be required by the securities administrators of certain states, to confirm that you meet such minimum financial suitability standards and maximum investment limits. If you are a resident of a state other than California, you understand and confirm that you (a) have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (b) have a net worth (determined with the same exclusions) of at least $250,000.

  2. I wish I could reinvest with LendingClub, unfortunately since I live in Massachusetts, I cannot. I’ve got some non-tradable loans from before the new platform but as they mature I can only cash out. I took a far more risky approach, adding some lower grade loans. Ironically my E’s and G’s continue to perform but I’ve got a delinquent C grade. I’ll be interested to see how the charge off process works…

  3. This is ingenious. I didn’t even know it existed. Just signed up and will look to invest. Thanks.

  4. Hello,
    I have a question about the account interface. How easy/hard/smooth is it to add/withdraw funds? Any fees to withdraw? thx.

  5. Beware, only certain states are allowed for residence if you want to invest in loans. I signed up, got the $25 bonus, and found out that I couldn’t invest from my state! (Alaska) So I ended up cashing out. I did keep the $25 bonus but I was disappointed that I could not partake in this opportunity. So, be sure to check if your state can invest.

  6. I am thinking about trying this out with about $1000, however I want to be sure it’s easy and painless come tax time, what has been your experience come tax time? Is it quick and painless?

  7. Arrrg, Unfortunately living in Maryland also precludes me from this.

  8. Thanks for pointing that out, Dan. This is from the Lending Club site: Individuals who want to invest in Notes through http://www.lendingclub.com must meet the following State and Financial Suitability conditions.

    At the moment, individual lenders can invest in Notes if they are a resident of one of the following States: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming. Lending Club has filed for registration with the appropriate State securities authorities in all other States and expects to be adding more states over time.

  9. Frankie says:

    How do you fund your account? I signed up a few months ago when you had a $25 link, and I used that to invest in one loan. Do you fund with bank account or paypal? I’m thinking of doing paypal, as that will just come from my C.C. so I’ll get miles. Any suggestions on that?

  10. ChrisMR says:

    frankie – i like the way you think. can you fund your account, then do a bank transfer back without ever lending a dime?
    essentially you could max out your CC monthly, and pay it all back with the transfer – creating a circle of your own money… your pocket, to CC to lending club to your pocket.
    you would rack up serious miles/cash rebates from your CC without ever spending a dime.
    perhaps this is what the authorities like to call “fraud”

  11. Gretchen says:

    Thanks for this post! I am intrigued. What happens to the interest you receive? Do you see it credited to your LC account monthly? Then do you choose a new loan to lend that interest to every month so that you are effectively investing the interest as well as the principle?

  12. i don’t see any $25 incentive on the website.. am I missing something?

  13. CowboyJack says:

    I’ve been a lender for more than 1 year and I suggest you post about your account when your loans are 18-20 months old. That is typically when I have seen some defaults myself. I’ve had about 2-3% default, but I’m still making around 10% (I was lending to A-B-C-D and some Es). Great way to park some money for a steady return.

  14. Gretchen -

    Interest is paid whenever a borrower makes payments… so if you have 30 different loans you’ll be receiving the principle + interest for those payments at various times throughout the month. You can either choose to reinvest that interest+principle back into another loan or transfer it out of lending club back to your bank account.

    I’ve been doing lending club for about a year and a half now. My first set of loans was $500 spread out across all grades of loans. I ended up having a grade E default on me (my only default) which sucked. Since then I’ve stuck just to grade A and B and had no issues. Even with the default I’m getting 6-7% return. Was very skeptical at first, but I think that if you’re cautious about who you loan to you can do very well with lending club. I’ve got about $3k invested right now, nearly all in A and B loans

  15. Frankie, according to the site: https://www.lendingclub.com/info/how-to-invest-money.action you can fund/invest through paypal.

  16. @ Vik

    I didnt see it either but when I went back to the home page I found that my account balance was $25. I assume its automatic.

  17. sillycat says:

    I am pretty sure Jonathan is living in Oregon, which is not in the list either… How come he can invest? Am I missing anything?

  18. Good questions! Here are some answers:

    - Yes, there are some lender requirements. I don’t remember having to fill them out though as I signed up pre-SEC.

    - Withdrawing is quite easy. Free ACH to linked checking account.

    - You can fund electronically via checking. However, if you don’t have a linked checking account, you can fund via PayPal (credit card okay).

    - The $25 is not mentioned on the page, but as noted it will show up after you open your account with no obligation or money from you.

    - LendingClub sends you a 1099 for the interest earned at tax time. Easy as a bank.

  19. Thanks for the information. I’ve been doing some searching but can-not find a reason why P2P lending is not allowed in Maryland or some other states. Can anyone fill me in on why this is the case and when I can expect change. Perhaps residents of the not allowed states can write to their local representatives.

  20. signed and got the $25bux right away and invested $200. Funded via Paypal. ACH via banks require 2 amounts to verify.

  21. Very interesting and well written blog post. I was wondering if your statement that 10% of loan applicants are accepted is something that LendingClub advertises or you know from another source. Thanks in advance for your response.

  22. Todd @ The Personal Finance Playbook says:

    So as of right now, none of the people you have lended to have defaulted? That’s great, but what do you plan on the default rate being in the future?

  23. Invest in Africa says:

    Why not invest, get a good return and actually help poor people in Third World countries.

    I have been investing in Micro-loans in africa for the last couple of years. I get +10%, help poor people start a business so they can build a future, and so far all loans has been repaid.

    Give it a try at http://www.MyC4.com

  24. Chris in Boston says:

    Jon @ Capitalist Maven

    I too live in MA and wish to lend on LendingClub. I sent them an email asking when MA will be allowed.

    Here was the reply I recieved:

    “Thank you for your email. You can buy Notes directly from other lenders irrespective of your State by using the Note Trading System.

    To invest on the Note Trading Platform, you must register with Lending Club as a Lending Member. You would then log on to the Lending Club site and choose the “Trade” tab and learn more about the Lending Club Trading Platform. This will take you to the Note Trading Platform operated by Foliofn, a registered broker dealer. You will be asked to register with Foliofn and once your registration has been accepted you can invest on the Note Trading Platform.

    As for investing directly on the lendingclub.com Website, we have completed the federal registration process with the SEC, and have simultaneously filed in all 50 States. We are currently awaiting a decision from your State’s securities authorities. Until and unless we complete the registration process in your State, you cannot buy Notes from Lending Club on the lendingclub.com Website and can only buy Notes from other members on the Note Trading System as mentioned above.”

  25. I should have not added my bank account to LC, now I am waiting for 4 days to start funding……and that is going to happen every time.

    is there a fee when one funds via Paypal?

    There is a $50 bonus for your friends who join as investors but nothing for you. so you may want to refer some of your friends.

  26. Actually you do get $25 for each person you refer that becomes a lender. For each person they refer you get $15. And then for every person that those people refer you get $10.

  27. sillycat says:

    Roger, I believe that $25,$15,$10 are for the BORROWERS, at least that’s what they stated on the website. I am curious why we are not getting $50 as we are referred by Jonathan, right?

    I signed up today, using PayPal to fund $5k with my 2% Fidelity AMEX card, pocketed $100 cashback and $25 bonus after learning the cash in the account is FDIC insured. I do plan to invest there but I am in PA. Any idea if I changed my registered address to Delaware (using my friend’s home address), can I bypass the restrictions?

  28. If you’re not in one of the eligible states I think you can just buy them on the open market. Look for loans that are selling for around the same or less as principal. Some ppl are asking stupid amounts, so even if they make all the payments you still don’t make any money.

  29. from the stat page

    Issued Loans (2,505) Declined Loans (26,939)

    looks like about 10% to me.

    from the fees page

    How much does all of this cost?
    If you are a borrower, you will pay a processing fee based on the loan grade (A-G) that ranges from 0.75% to 3.00% of the loan amount. This fee will be deducted from the loan proceeds prior to depositing the loan in your bank account. For example, if you receive a $5,000 loan with a 1.50% processing fee of $75, you will receive a loan amount of $4,925. If there should be any delinquencies or collection activities on the loan, additional fees will apply.

    Lending Club charges a service charge to lenders. The service charge is one percent (1%) of each payment from the borrowers.

  30. dabenpb says:

    The rates are not very attractive to the borrower. Lending Club charges a 3% processing fee subtracted from the base amount borrowed but also charges you interest on that 5% or am I reading this incorrectly? This is in addition to the high interest rates for an average borrower.

    “This Processing Fee is included in the Annual Percentage Rate calculation and is subtracted from the loan proceeds prior to disbursement. For example, the final amount credited to the borrower’s bank account for a $5,000 loan with a 3.00% Processing Fee of $150 will be $4,850. Lending Club does not receive any Processing Fee if the loan listing does not close and fund.”

  31. When corporate bonds yield more than 10% these days, why lend to riskier strangers?

  32. Chiko777 says:

    I have been reading a studying up on LC for a while now. I plan to throw some of my savings into it and test run it for the 8-12% gain. But every time I start thinking about the 100-300% I make trading/investing in penny stocks I reconsider. But I need to go ahead and at least throw $1,000 into this bad boy, better than having it sit in my checking account.

  33. Prosper, which has been around longer, has pretty bad default rates. Should we really expect LC to be any better?

  34. So, If I borrow $50,000 at 4% and lend it at 9%, that should work out well, right? :)

  35. Is it worth it? i know people have tried it, but is it worth it?

  36. i like the basic idea behind lendingclub. But i don’t understand why they have so much restrictions on LENDERS. For example:
    1. your income needs to be more than 100K in california or 75K in other states. I guess any person who is retired but has bunch of cash available would fail to qualify for their lending program.

    2. I don’t like providing SSN when i am signing up as Lender. But don’t think lendingclub can do anything about it since they have to report your investment income to IRS for tax purposes.

  37. I think any current lender can send you an invite and you’ll get $50 to kick the tires. I know I have the ability. Rules here may not allow these sorts of exchanges though.

    I joined using an invite I found online that gave me $25. That loan went fine so I’ve just added another $250 and hand picked some more loans.

  38. wheresprosper says:

    Why is Prosper not open any more? They just send you to lendingtree? Did they go bankrupt?

  39. From Prosper.com: “Prosper is in a quiet period and is not accepting any new Borrower or Lender registrations until our registration statement with the SEC becomes effective.”

    LendingClub.com went through the same thing already. I believe the process lasts approximately 6 months.

  40. Mike: “When corporate bonds yield more than 10% these days, why lend to riskier strangers?”

    Not all corporate bonds are at 10%. The ones at 10% are at 10% for a reason. Most yields on any corporation that is somewhat stable are around 5% to7%.

    You also can’t invest $25 at a time in corporate bonds. This makes it much easier to diversify across different borrowers.

  41. I’ve been doing lendingclub about a year now. It’s my first attempt at any kind of investing other than a savings account. I was drawn to being able to invest just $25 at a time, and wanted to use this to learn how to manage risk in investing.
    Out of 27 loans, I have 3 in default. These are the first three loans that I made a year ago, One is a G, but two are B’s. Each of these was for over 18,000. At first, I invested in Business loans, because I wanted to help small business people. These are the ones that defaulted. I now only invest in loans to A’s and a couple of B’s, who are refinancing credit cards for lower rates, and want a loan for 6000 or less. I figure that if they’ve been making the payments so far, have good credit, and want a small loan, which is easier to repay, that it’s a safer bet. So far, so good with my new plan.
    Right now, my net return is -.11%, because of the 3 defaults, and the fact that I don’t have many loans. I am making a new loan a month, so hopefully, as I make better choices, my returns will go up. Of the 3 that are in default, one has gone through the courts and has a garnishment judgment granted, and the other two are at the outside collection agency point, so maybe I’ll recoup some money.
    I’ve been impressed with lendingclub so far, even though I haven’t done well, and plan to continue. I’m learning a lot through my mistakes, and that will help me make money in the future. I’m posting this so that those of you thinking about lending can maybe learn from my mistakes too.

  42. I just signed up as a potential lender and borrower. After 13 days on the list of loans they pulled the listing. They sent an email stating that my employer didn’t fit thier criteria…?? Anyone ever heard of that? 47 people had funded the loan to that point. I had one comment and question that said i had a good write up. Everything looked good and then from nowhere… I am self employed coffee retail and wholesale for 8 years. Ten employees, in good standing, no debt… ? No explanation. I have seen other self employed folks and others get loans with a lot less than my stable background. Credit was good, no delinquents… whats that about employer? No transunion info on my company, so I’m out. By the way they stated listing expired on the web page. In fact they pulled it early. As a potential lender I wouldn’t mind knowing if they’ve got thier own arbitrary system and criteria. I thought they were into transparency. There’s nothing wrong with explaining to members that criteria for employers has to be A,B,C…

  43. Logged in and this is what I see in my account. Check for yourselves.

    When You Invite New Investors:
    New Investors Get $25 to Invest in Lending Club notes. With average net annualized returns of 9.61% it’s a great time to invite friends to join Lending Club and we’ll give them $25 to get started.

    When You Invite Approved Borrowers:
    We Pay You or a Non-Profit of Your Choice each time someone in your network joins as an approved borrower. The more people you invite, the bigger your network, and the more bonuses you can earn:

    * $25 for every borrower you refer
    * $15 for every borrower they refer
    * $10 for every borrower they refer

  44. Does anyone use Quicken and lendingclub? How do you enter it into Quicken? I’ve got an investing account setup and transferred money into. I’ve made 1 loan and the first payment just arrived. Now, I’m not sure how to track it in Quicken.

    Thanks!

    And thanks for the informative blog!

  45. Interesting post about Lending Club. I’ve been watching it for a few years now. I was intrigued that there is a Self-Directed IRA Option. However having a Self Directed IRA myself and lending money from it I can say for sure that I wouldn’t be comfortable with that at all. Everything is a personal unsecured loan. If the borrower defaults there’s no real consequence. I invest in other people by loaning cash when they need it as in P2P Lending, it’s just that when I do it in my Self Directed IRA my Note is secured against something the borrower values more than the money I’ve loaned them. I have little problems getting paid due that. I’m also very selective as I’m sure you are as well with your loans made to Lending Club folks.

    If I’m missing something about these loans being unsecured by collateral please tell me.

    Will

  46. sesughordams says:

    please i want to start my online business and i need up to $500 to satrt. is it possible for me to get this loan from you?

  47. @SESUGHORDAMS:
    If you want a loan, you are going about it by hitting every red flag for being a scam. First, go through an actual loan program like lending club instead of asking for it on a comment board. We want to know we are going to get our money back- that’s why we use lendingclub. Second, check your spelling as poor spelling is not very professional and is a red flag. If you aren’t a scammer, then good luck and go about things the right way- you’ll get better results; if you are one, then cut it out, because going to jail isn’t fun and one day you will get caught.

  48. What is happening with Loan IO? Are they defunct? Their “quiet period” with the SEC must be long over. And as for Prosper I think they are a dying animal ; their management is fat,dumb and happy and has no intentions of making any effort to improve their business. Lending Club is running over Prosper like a semi truck running over a rabbit.

  49. curious on P2P lending says:

    Hi JP,

    I am curious on your current status with your Lending Club results? I have read some mixed reviews, with all the charge offs not really transparently being displayed and calculated in your Net Return, etc. – can you comment on that? I am considering LC for another investing angle.

    Thanks!

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