Category Archives: P2P Lending

Lending Club: One Year Later

When I moved to California last summer, I was pretty excited, not just because I was engaged and was trying out self-employment, but because it meant that I could finally invest using Lending Club.

It’s been just over a year since I opened my Lending Club account and invested an initial $5,000, so now is a perfect time to review and evaluate my performance.

I developed certain criteria that would help me pick quality loans and avoid loans that were more likely to default. Using these guides, I have selected exactly 250 loans to invest in over the past year.

Lending Club Performance

I tracked my performance for the first half of the year, as results smoothed out, took a little break. Feel free to take a look at my performance over the past year. My performance this year was 12.70% overall, which I’m very happy with. Over the same time period, the Dow Jones Industrial Average has returned a little over 8% while the S&P 500 has returned about 11%. It’s just a snapshot so I don’t want to read too much into it (because if I had started a month earlier or later, the returns change drastically), but I expect the Lending Club returns to be more consistent than the ups and downs of the stock market.

Overall, I’ve invested in 250 loans, the vast majority of which were $25 loans. I have one $200 loan, two $100 loans, and forty-six $50 loans, and all of those loans are current, I selected them because I felt especially confident in them and didn’t want to have money in my account that wasn’t earning any interest.

Of those 250 loans, 27 of them were fully paid back early. Having loans paid back doesn’t sound like a bad thing, but having loans paid back early can actually hurt performance.

I also have 9 loans that were charged off. All of these were $25 loans, and I did receive a little over $27 in payments from the 9 loans, so in terms of bad performance, it could have been worse. The average default rate of Lending Club loans is about 3%, and 9/250 is 3.6%, so I’m a little above average, but I also invest in riskier loans, so I think I’m doing pretty well.

There are 11 loans that are currently late, but I expect at least 5 to get back on track. Those 5 have been late in the past but have always made their payments. Hopefully a few of the others will also make payments and not be charged off.

Lessons Learned

I’ve learned a lot about Lending Club over the past year and have several takeaways that will help me in the year ahead:

  • Be careful about investing in people that are likely to pay off their loans to early. I should look for people who want to consolidate debt, not get them through until their next paycheck.
  • It also seems like (for the most part), once users are able to get through the first 6 months, their likelihood of defaulting is much lower. I don’t know if there’s anything that I can do to utilize that information, but it’s definitely something I’ve noticed from my account performance.
  • It takes a lot of time to manage an account. I receive around $200 in payments in each month, which means around 8 new loans each month. I someone’s only find 1 or 2 loans that I want to invest in each time, so it means checking my accounts more often that I’d like. I can battle this by making more $50 loans, though I definitely like the idea of diversifying by investing in more $25 loans.

Lending Club Returns at 13.71% in April 2012

My goal is to achieve a greater than 13% return using Lending Club, and this month I took a step back, but hopefully the worst is behind me.

Recent Performance

I’ve been doing some complaining about loans that have been paid off early, but this month was a tough one because of a few old loans that haven’t been paid in awhile. Actually, the performance this past month has been pretty good. Another loan of mine came back into good standing, but another was charged off, which is where the drop in interest rate comes from.

I’ve tried to reduce the number of loans that default by using smart criteria, so hopefully I’ve been getting better and I’ve seen fewer loans have skipped payments.

13.71% Interest Rate

I have fewer loans in the grace period, so I think the future looks bright, and I have no new loans that are late.

Take a look at my account snapshot:

lending club

There were no new deposits this month (and I’m not planning anything for the next few months, at least). Still, with expected monthly payments of over $150 and, I can’t just sit back and relax. I’ve gotten into a pattern of checking for loans every two weeks, which isn’t too burdensome and doesn’t leave cash sitting idle earning 0% for very long.

Future Lending Club Plans

I won’t be doing much other than simply staying the course by investing in new loans and watching payments come in.

I’ve got my fingers crossed that the worst is behind me, and if a 13.71% return on my investment is the lowest this account gets, I will be pretty happy!

Lending Club Returns at 16.02% in March 2012

My goal is to achieve a greater than 13% return using Lending Club, and my returns keep growing, even in the face of some setbacks.

Recent Performance

My goal is to reduce the number of loans that default by using smart criteria, and this month was an excellent one. I stayed steady at 5 loans that are late 31-120 days and no other loans are 15-30 days late, so there were no big setbacks. 3 more loans were paid off early, which affects my returns negatively, but as I say, better to pay early than not to pay at all. Plus, all of my late loans have combined payments of under $5, so it’s not exactly burning a hole in my pocket.

16.02% Interest Rate

A few of my loans were showing up as in the grace period, and in the past week, 3 payments have come through, which explains the slight bump over 16%.

Take a look at my account snapshot:

lending club

I didn’t deposit any more money, but with 3 loans being paid off in full and expected monthly payments of over $150, I still have plenty of available cash. Ideally I’d go through once a week, but really I should make sure to invest the idle funds twice a month so that it’s not just sitting there. The goal of the account is to make money and make money is what it shall do!

Future Lending Club Plans

I’ve got enough to make another $25 loan, so I’ll be doing that in the next few days. I also now have expected monthly payments of $152, so that means 6 new loans a month. That’s pretty cool, I sit back for a month and I get $150 I didn’t have before. No wonder this lending business is so popular!

Not too much to complain about here, let’s hope for everything to stay the same going forward!