Lending Club Year One

I opened my Lending Club account with $250 September 2012.  So far the results have been great!  The people I'm lending to are indeed keeping up with their payments.  This allows the borrower to pay off debt, and I get to collect a nice stream of interest income.  It's a great arrangement and the best part is that I feel like I'm helping people.  Look at a traditional credit card; it's not uncommon for the payments to last up to 20-30 years.  The notes I'm funding last 3 years then, poof, the debt is gone.  Perhaps one day some of my borrowers who are consolidating & paying off debt will become LC investors themselves or perhaps even strive to build a passive income stream with dividend stocks & fixed income instruments!

The Good

Hard to argue with a 14% interest rate!  Very difficult to top with virtually any other type of investment.

FOLIOfn is a service for LC investors to buy and sell notes on a secondary market.  I have found this service to be a tremendous asset.  Last month the payment on one of my loans was 17 days late (no big deal, I expect this sort of thing to happen).  I managed to sell this very note on the secondary market for a slight discount of maybe 3-4% off principle.  Nice!  Non performing loans can be sold reducing my risk.  Great feature.

I'm helping people.  Look at this borrower, who put extra on his loan presumably to pay off debt.

This borrower is paying off debt early.  Who ever you are, know that I'm rooting for you!

The Bad

I'm approaching the point where a borrower might be more likely to default.  After a year or so, personal finances can change drastically for any number of reasons.  Unfortunately bad things will happen to people.  It is something I am prepared for and I'm not sure that hefty interest rate will hold long term.  I will have to periodically review my notes although I don't spend much time with LC because it is only a small investment.

The Ugly

New notes are becoming harder and harder to find.  Apparently the word on Lending Club is out, this investment is becoming crowded!  What that means to me is that I'm not able to get a meaningful amount of money invested.  There just aren't enough loans unless I want to broaden my screen to allow lower quality.  I'd actually like to ramp up my monthly deposits with LC, but for now I'll have to wait for this situation to change.

Interest rates on new loans are lower than they were a year ago.  B & C notes are in some cases paying a whole percentage point less these days.  Be aware that LC might not be quite as lucrative as it once was.  This is a serious negative, although I don't know how it affects lower grade notes under C.