Tuesday, November 13, 2012

Lending Club Update

As you can see, the returns are simply phenomenal!  It's tough to get interest rates like this in anything else except mortgage REITs.  I don't want to own mortgage REITs!

I've been investing at lendingclub.com for about a month and a half now.  So far no major complaints and no red flags.  I'm starting to think this is a valid investment option.  To date I haven't had any defaults or anything negative.

What I Like:
●Returns are very high (so far)
●Simplicity. This is very easy and takes little to no time. I spend hours and hours researching stocks before I invest, it's not necessary with lending club. A first grader could do this.  The site itself is also user friendly.
●If a loan defaults I can sell on the secondary market and recoup part of my losses.  I have yet to implement this tactic however.
●Fixed income alternative.  I plan to use LC as a portion of my fixed income allocation inplace of bonds and preferred stock.

●There aren't enough attractive (using my criteria) loans to put a lot of money into this.  I want to own as many loans as possible to diversify.  It's the same tactic I use in my stock portfolio to reduce risk.  Unfortunately I would have to modify my screens to be less selective to accommodate a large investment.  No thanks!
●I do not know how this will affect my taxes.  We will see during tax season!
●The interest these loans pay are front end loaded.  It shows a massive annualized return right now.  It will become lower over time.  I'm pretty sure I'll experience a few defaults at some point as well.
●Time delays.  It takes a little bit for a loan to fully fund.  Usually less than 5 days.  Then the loan has to be approved which can tack on even more days.  Then the payment rolls in and that has a time delay as well.  Patience is needed!
●Some loans are rejected further delaying investments

My Screen:
●36 Month - Term
●20 Max - Total Credit Lines
●0 - Delinquencies
●$15,000 - Max Loan Amount
●0-1 - Inquiries
●Consolidate Debt/Medical Expenses - Loan Purpose
●Exclude Loans Already Invested In
●10% - Max Debt To Income
●Mortgage/Own - Home Ownership
●4 Years - Min Length Employment
●B-G - Interest Rate

●Verify all information is filled out
●Verify all grammar and spelling is correct
●Verify requested loan payment is less than 10% listed income

This screen is quite selective.  I wouldn't even qualify!  I get excited to see a C or D make it through.  Most of the time there will be a couple B loans, sometimes nothing at all is available. 

For now I will continue investing with lendingclub.  Thus far the returns are great and it has surpassed my expectations.  I'll be adding another deposit soon.


  1. Thanks for the update man. Sounds really interesting. This is definitely something I'll have to look into.

    Would you feel comfortable throwing $5k or so at this, or is still just an experiment right now?

    Best wishes!

  2. No I wouldn't add 5K into this quite yet. I want to let it ride for a while and see how it works with taxes too. Returns are outsized in the beginning. I think longterm returns might be ~8-10%. Still pretty darn good.

    I'll be adding $50 per month until further notice. I'll report any defaults, tax information, and anything else I notice about it. Stay tuned...