Saturday, September 7, 2013

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.


  1. I also have found new money at LC more difficult to allocated these days. I'd like to ramp up my funding of these account, as stock values are getting harder to find, but am hesitant.

    Maybe it is a matter of lowering my expectations for this type of investment, and "settle" on 10-12% instead of 14-15%.

    1. "Maybe it is a matter of lowering my expectations for this type of investment, and "settle" on 10-12% instead of 14-15%"

      That is exactly what I have had to do. I have been unable to get a C or D loan in many months. Still the returns are worth it even with lower yield.


    2. Yeah, I noticed "B" now makes up 47% of my notes. Cs & Ds are harder to come by. I also noticed at night, after the last of the daily notes are posted, the site can be hard to use. laggy, etc... Hopefully these issues are just growing pains.

  2. Interesting you guys are seeing problems with finding good notes. C and D is about what I went for previously. Wonder if its a temporary thing or if that is the new norm with more investors then loan applicants.
    I was contemplating getting back into Lending club because I too like the feeling of helping someone out of debt.
    I tried it once before and I had a note default on me. HATED IT

    1. Hey Pulling!

      I use a strict screen to weed out potential dead beats. It's extremely strict to the point where I wouldn't even qualify myself. In addition, I invest $25 at a time to fund as many notes as possible and diversify much like a large stock portfolio. Thirdly, I periodically review my loans. I will sell anything that has paid late through the FOLIOfn secondary market. I really like the secondary market for unloading shady payers.

      So far no defaults. I might be lucky though.