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.

3 Responses to Lending Club: One Year Later

  1. Congrats on the returns Daniel, sounds like you are doing well. I think debt consolidation is a good category to focus on – these people have performed well in the past and should continue to do so.

    I would also like to point out to your readers that investing doesn’t have to take a long time. Investors like yourself like to consider each loan carefully by reading the loan descriptions. I invest in 100-120 loans a month and I spend just a few minutes a week doing so. It is not for everybody but I rely on the credit data only and don’t read the loan descriptions – this can save a great deal of time.

    • I agree with Peter. I have a filter that I use whenever I have > $25 and then sort by the largest rate. Very rarely do i look at the description or any of the details. That is what the filter is for. Frequently out of the available 800 loans, my filter only brings back 1-3. I imagine I will have to relax a criteria or two once I have more invested. Out of 147 loans I have 0 defaulted. I sure hope my luck stretches through to 2013. Haha.