LendingClub P2P Loan Portfolio Performance Update

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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.

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  1. I assume that you still can only invest if you live in certain states, right?

  2. I think part of the success to the site is doing a bit of research and being conservative on loans (not saying you weren’t), but all of mine are category A or B (i.e. highest credit scores and history). I’m using the same principles as a traditional loan officer, almost to the point if they can’t pay the loan back right now (i.e. they don’t really need it in the first place), I don’t lend. So far it seems to have worked. Averaging about a 9 to 10% return.

  3. @Dave – I haven’t been keeping up with changes, but yes you are correct. Here’s what I found as of today. For direct investment, you must reside in:

    “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, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.”

    More people are eligible to invest via the secondary note market:

    “Anyone can participate. You must first sign up as a lender with Lending Club (there is no obligation to lend money), then sign up as a trading member with FOLIOfn. Both memberships are free of charge. At this moment, applicants from District of Columbia, Kansas, Maryland, Ohio, Oregon, Texas, and Vermont are not eligible to become trading members with FOLIOfn.”

  4. Too bad I live under the communist rule of hippiedom (Oregon). I really need to move to Nevada or simiilar. Frustrating!

  5. Am I misunderstanding, or does that $250 bonus on the $2500 investment provide an initial 10% return instantly? Doesn’t that seem like a no-brainer? Then if you make loans that earn an average of 0% and are able to jump out after a year, you still have a 10% return. Where am I wrong?

  6. I live in Texas and have wanted to get in on this for a while… alas, no luck. I wonder what the hold up is. There are a LOT of states missing.

  7. For the $250 bonus, do i have to INVEST the $2500 or just add $2500 to my LC account?

  8. You need to invest the money in LC loans within a time period, usually around 30 days, in order to “un-lock” the bonus.

  9. Pobox1238 says

    You need to invest the whole $2,500 for the bonus

  10. I started with about $1,000 in August of 09 and am currently sitting at a NAR of 12.11%. I have “started” to get my late notes, though, with one of them sitting at 30-120 days late. 4 were fully paid off in the first few months.

    The late one is a B rated and they are on a payment plan that they have made a few partial payments on (the most recent is currently processing). In retrospect, investing in a Realtor in LV isn’t the best idea right now…

    My strategy is to push the risk up a bit mostly for the higher APR. The way I see it, most of these people are decent people who are likely to try to pay it off, so higher APR across the loans will help cushion against the ones who do default. I also make sure to read the loan descriptions and spread my liability thinly ($25-50 per note unless I get a really good feeling).

    I refuse to invest in vanity loans. That includes car (unless the description is compelling), boat, wedding, home improvement, etc. CC Refi tugs the heart strings (I’ve been there), and it’s hard to resist a medical loan, even though I think those are more likely to default.

    One thing I don’t understand is the “low maintenance” investment comment. I’m constantly getting prompted to reinvest as payments and interest pile up. Sure, I could let the cash sit, but then it’s earning nothing which isn’t helping my return at all. How much cash available did you have after 6 months?

  11. I live in MA which is not on the list, but was able to invest. However, I got tired of sifting through the listings and I don’t trust their matching algorithm neither, so I pulled out completely.

  12. GreeceGrease says

    This is an excellent investment opportunity, however 90 loans is nowhere near sufficient diversification. During the webinar the other day, one of the special guests they had was talking about 200 loans minimum and 400 recommended. Defaults happen, and your best defense against it is: diversification. That’s prob the reason why you’re making 4-5% (which is not bad either)… but you could be making 9%+ which is their platform avg

  13. I don’t let LC invest my returns for me. I hand pick each and every loan.

    “Low maintenance investment” = “low return investment”

    There are a lot of crazy loan requests out there. I’ve seen A grade loans that I wouldn’t put money on and yet I have invested in 2 E grade loans that are still performing (Most of my loans fall in the B and C range). It baffles me to see loans out there for “Other” with no loan description that are 10% funded.

    Not investing in vanity loans is an emotional decision but statistically some of the best returns come from vacation loans.

    Either way it goes, you have to really look at each and every loan request carefully and ultimately make the decision of “Given the information provided, can they pay this loan back”.

    Thanks for the update.

  14. Robert – it sounds like we’re not far off in strategy. I don’t invest in vanity loans primarily because my gut instinct is that these are people who don’t have sound financial strategies. Taking a vacation without sufficient money, for example, isn’t smart in my book.

    When you say statistically, do you mean based on some study, or based on your own experiences? Either one is valid and interesting to me, I’d just enjoy more details.

  15. Jonathan: If you haven’t logged into your account in months, then your “real” return is even worse, as you’ve had a bunch of cash sitting around earning 0%. They don’t factor this into your NAR.

  16. yd,

    Statistically according to the stats on Lending Club. Most of the loans I invest in are Credit Card Refinance though. Ideally the person isn’t taking on any extra debt if they use 100% of the funds to pay off existing debt.

  17. MakingItWorkNJ says

    Hey Johnny, any reason why you wouldn’t allow my comment about LC and the SCRA? I wasn’t trying to sound anti-military but I think people who are going to invest should be made aware of it!

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