I invested $10,000 into person-to-person loans in November 2012, split evenly between LendingClub and Prosper. It’s been a little over 9 months since then, so I wanted to give a detailed update in addition to my brief monthly updates. The primary goal of this portfolio is to earn a target return of 8-10% net of defaults, but I also wanted to see if there were significant differences between the two competitors Prosper and LendingClub.
I’m also considering liquidating both portfolios after 12 months have passed. I’m getting a little bored with the experiment, and having to sell the loans would also allow me to compare the ease of selling either company’s loans on the secondary market.
Portfolio Credit Quality Comparison
I wanted to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. Peter Renton of LendAcademy made this helpful chart comparing estimated defaults rates with their respective credit grades. Since each company has their own proprietary credit grading formula, they don’t match up perfectly.
Here’s my portfolio breakdown:
With LendingClub, the dollar-weighted average interest rate is 12.24%. In terms of credit grade, 91% were in the top 3 grade (A, B, C). 97% were in the top 4 grades (A,B,C,D).
With Prosper, the dollar-weighted average interest rate is 14.05%. In terms of credit grade, 73% were the top 3 grade (AA, A, B). 97% in top 4 grades (AA,A,B,C).
In general, the Prosper portfolio appears to be slightly more risky but also has a slightly higher average interest rate.
(Side note: Why slightly more Prosper notes than LendingClub? Prosper’s automated Quick Invest feature makes it faster and easier to reinvest your money. LendingClub takes a little longer and often the loans that I want to invest in don’t end up funding so the money gets put back into my account uninvested. Since I only check up on this account once a month, this results in being less fully-invested.)
Portfolio Late Loan and Default Rate Comparison
As you can see with this older reference chart from Prosper back when they had lax credit guidelines, default rates tend to rise consistently throughout the holding period, with a slight tapering off near the end of the loan period. I am only including this to illustrate overall trends, not specific default rates.
With LendingClub, so far I have invested in 257 loans. 232 are current, 22 were paid off early, 1 is 30+ days late, none are 30+ days late, and 2 were charged-off. That means 1.2% (3/257) were 1 month late or worse at this point.
With Prosper, so far I have invested in 267 loans. 239 are current, 19 were paid off early, 1 is under 30 days late, 6 are 30+ days late, and 2 were charged-off. That means 3.0% (8/267) were 1 month late or worse at this point.
Portfolio Adjusted Value Comparison
Based on past history, I adjust my loan principal by conservatively assuming that all loans that become 30+ days late will default. Sometimes loans will go from late back to current (plus possible late fees), and sometimes there will be some additional money recovered on charged-off loans.
With LendingClub, I had $4,920 in loans and $405 in cash as of 8/11/13. $21 of late loans gives us an adjusted balance is $5,325.
With Prosper, I had $5,299 in loans and $94 in cash as of 8/11/13. $129 of late loans gives us the adjusted balance is $5,264.
Here is a historical chart of the adjusted balance of LendingClub vs. Prosper. I had to adjust some values due to the fact that LendingClub reports accrued interest while Prosper does not.
At this point it is still too early to draw any conclusions. Your results may be different from mine. But for now, both portfolios are returning a positive return on the order of 8% net of fees. I tend to like Prosper’s website better, but in terms of relative performance Prosper is a currently behind LendingClub in terms of having more late loans in the pipeline than can be compensated for by the higher average interest rates being charged.