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Our Lending Club Investments, One Week Later

Written by Nickel - 6 Comments

Last week, I talked about our initial experiences investing money with Lending Club (see also my Lending Club review). In short, I created two $500 portfolios, each of which contained twenty $25 notes. Our “Low Risk” portfolio had an average interest rate of 9.82%, whereas our “High Risk” portfolio had an average interest rate of 15.42%. Today, I thought I’d provide an update of how things have been going.

The loan funding process

For those that are unfamiliar with the way that Lending Club works, the funding of loans is more of a process than an event. Because loans are divided up into multiple “notes” that are sold to different investors, all of the notes have to be sold before a loan gets funded. Loans that don’t get funded within two weeks have to be re-listed, and any money that was committed to that loan is returned to the lender.

Progress to date

So… How have things worked out so far in terms of loans being successfully funded? Well, as you can see from the screenshot below, 21 of our 40 loans have been successfully funded thus far. Nine of our loans are still in progress, and ten loans have failed to fund, resulting in the $250 in available cash.

Of the ten loans that didn’t get funded, eight were in our “High Risk” portfolio, and two were in our “Low Risk” portfolio. I suspect that this disparity results from lenders being more willing to invest in lower vs. higher risk loans, though it’s hard to draw any firm conclusions based on such a small number of notes.

The good news from all of this is that it’s very easy to re-deploy funds that were previously committed to loans that didn’t get funded. To do this, I simply clicked on the “Invest” link and ordered two more “Low Risk” notes as well as eight more “High Risk” notes.

As far as actual loan performance goes, the first payments aren’t due until next month, so there’s not much to report. All I can really say is that I’ve accrued a total of $0.24 in interest thus far.

If you have any questions about how Lending Club works, please let me know and I’ll do my best to answer them.

Published on May 20th, 2009 - 6 Comments
Filed under: Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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6 Responses to “Our Lending Club Investments, One Week Later”

  1. 1
    Eric Says:

    Thanks for the update. Interested in hearing more later on. :)

  2. 2
    Jason Says:

    While I have no experience with Lending Club, I’ve used a similiar person-to-person lending site (www.prosper.com) with bad luck. I’ve lended money to 8 different borrowers:
    1 with a credit rating of A, 3 with a credit rating of B, and 4 with a credit rating of C. The average interest rate was 13.6% and I lended an average of $56 to each person.

    So far, my borrower with the A credit rating has filed for bankruptcy after paying off only 6% of the loan.

    1 of my B Credit Ratings has filed for bankruptcy after paying off 10% of the loan, the second B credit rating is in Collections after paying off 68% of the loan, and the final B credit rating is in good standing and has paid off 86% of the loan.

    2 of my C Credit Ratings borrowers are currently in Collections. 1 of them paid off 3% of their loan the other paid off 62%. The other 2 C Credit Rating borrowers are Current. One has paid off 55% of their loan and the other has paid off 86%.

    All in total, I lended $448.75. I’ve collected $200.80 so far. In the best case scenario, if my 3 borrowers who are current on their loans pay them off in full, I will get an additional $70.53 for a total of $271…..not a very good return for my money.

    I guess one thing that is important to remember as a lender on these sites, is that most borrowers using them do so because they can’t get a loan elsewhere.

  3. 3
    Ethan Says:

    I joined LendingClub about the same time Nickel did. I am taking the same approach, splitting money up between different risk levels. I’m hand-picking the loans based on all of the request information, and certainly finding a lot that I *don’t* want to be part of even though they fall within my numeric lending parameters. You can’t verify many good things about a person in the few sentences they write to request the loan, but you sure can identify a lot of bad things.

    I have had to re-position about 40% of my initial lending attempts due to the loan not being fully funded by the community. Another level of protection, I feel. A bit of crowdsourcing on the credit-worthiness of the borrower. I do believe that my experience at LendingClub will be much better than the past experiences of others at Prosper, but I also realize that LC’s current results are skewed by the volume of new loans – loans don’t tend to default right away, so when new loans make up a high percentage of all outstanding loans, the return rate will be artificially high.

  4. 4
    Nickel Says:

    Ethan: I agree that you can develop a gut feeling about people from their loans apps, and it’s sometimes enough to turn you off. That being said, I simply don’t have the time to manually vet all of the loans that fit my criteria. I’m also not convinced that my gut can do a better job of predicting credit risks than broad numerical categorizations (credit score, DTI, and so on).

    I do agree about the crowd-sourcing aspect, though… If you compare the loans that fill up fast to those that languish and eventually expire, there’s a definite difference in apparent quality. And yes, I agree that default rates will likely climb as the average age of loans increases.

  5. 5
    Lems Says:

    am I the only one getting sick of the prosper lenders who got burned and can only poop all over other p2p lending opportunities just because they fell in Prosper’s trap?

    I feel sorry for Jason, but gosh! stop comparing apples to oranges.

    I did invest in Prosper. I’m making 2-3% after my share of defaults. i realize I’m not in the group who lost tons of money, but I still could go down to 0 or less. I tried Lending Club, and never went back to Prosper. Here is why:

    1) Lending Club is very strict with borrowers, Prosper never was. Almost anybody could list a loan there. I think Lending Club only lets in less than 10% of the best credit borrowers.

    2) Lending Club does extensive credit review and analysis. Prosper never did. They just presented whatever came from the borrower’s credit report. Looking at Lending Club’s method of assigning grades requires a doctorate degree on credit review. Prosper just assigned grade based on FICO score alone.

    3) Lending Club’s collections team are ninjas compared to Prosper’s clumsy collections efforts. Just look at how much information Lending Club offers regarding the collections process for each loan. As far as i could tell, my prosper late loans kept going late with no update from the collections agency. My default rate at Lending Club is small enough that I am still making 8%+. prosper’s default rate is a joke.

    4) Lending Club is very responsive and responsible to the lender community. Prosper could have not done anything more to upset lenders a bit more. Just read through prospers.org, or check out the class action suit if you are not familiar with the issues.

    So, Nickel, i think you’ll do well at Lending Club. The trick is reinvesting your payments as soon as possible. Starting with $1K makes sense, but my personal opinion is that this investment does not make sense unless you are putting in $4K or more, to allow you to diversify in a meaningful way (150+ loans). Good luck.

  6. 6
    Jason Says:

    Lems,
    I apologize if my post came off as complaining about Propser and bashing all Person-to-Person lending sites, as that was not my goal. Also, I’m not a frequent reader of Five Cent Nickel (A couple times per month), and it wasn’t until after I posted my comment that I looked through some other articles in the past month about Lending Club, only to see that other people had already written similiar ‘negative’ comments about Prosper.

    My total loss from investing in Prosper will be a maximum of $248. I’m pretty sure I can live without that $248 :-)

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