Lending Club Historical Repayment Rates
Tip It!As a followup to my recent posts about investing through Lending Club, I thought it would be interesting to crunch some numbers related to historical loan performance. One obvious concern when it comes to peer-to-peer lending is that the borrowers will default. At best, this will severely dent the return of your overall portfolio. At worst, you’ll wind up losing money. So how bad is the risk?
Lending Club repayment rates
What follows are three tables reflecting the current status of loans issued during 2007, 2008, and 2009. Since Lending Club notes have a three year maturity, none of them have actually matured yet. While it might be more informative to calculate these stats in terms of dollar amounts, I decided to use numbers of loans for simplicity.
As a reminder, Lending Club grades their borrowers based on perceived credit risk. Grade A borrowers are those that have been judged to be the least risky, and thus they have the lowest interest rates. Grade G borrowers, on the other hand, are the most risky and have the highest interest rates. For more details, check out my Lending Club review.
For reference, Lending Club issued 603 loans in 2007, 2393 loans in 2008, and 1681 loans thus far in 2009. The 2009 numbers are, of course, much less useful. After all, we’re only six months into the year, so there hasn’t been much time for these loans to go bad. Regardless, I’m including it here in the interest of providing full data.
Current status of loans issued in 2007:
| Grade | Current | 16-30 Days | 31-120 Days | 120+ Days | Paid Early |
|---|---|---|---|---|---|
| A | 71% | 0% | 0% | 0% | 29% |
| B | 69% | 0% | 3% | 10% | 17% |
| C | 65% | 1% | 11% | 9% | 13% |
| D | 65% | 2% | 6% | 16% | 11% |
| E | 66% | 0% | 9% | 17% | 8% |
| F | 37% | 4% | 17% | 27% | 15% |
| G | 46% | 0% | 14% | 29% | 11% |
Current status of loans issued in 2008:
| Grade | Current | 16-30 Days | 31-120 Days | 120+ Days | Paid Early |
|---|---|---|---|---|---|
| A | 86% | 0% | 1% | 0% | 13% |
| B | 82% | 1% | 3% | 4% | 10% |
| C | 83% | 1% | 4% | 5% | 7% |
| D | 80% | 0% | 5% | 8% | 5% |
| E | 80% | 1% | 4% | 7% | 8% |
| F | 70% | 0% | 5% | 16% | 8% |
| G | 77% | 0% | 6% | 12% | 6% |
Current status of loans issued in 2009:
| Grade | Current | 16-30 Days | 31-120 Days | 120+ Days | Paid Early |
|---|---|---|---|---|---|
| A | 99% | 0% | 0% | 0% | 1% |
| B | 98% | 0% | 0% | 0% | 2% |
| C | 97% | 0% | 1% | 0% | 2% |
| D | 99% | 0% | 0% | 0% | 1% |
| E | 99% | 0% | 0% | 0% | 1% |
| F | 97% | 0% | 0% | 0% | 3% |
| G | 93% | 0% | 7% | 0% | 0% |
Lessons learned
One of the most obvious things that you’ll see from these data is that the Lending Club default rate does, in fact, generally correspond to the loan grade. Interestingly, there hasn’t been a single default (120+ days late) on a Grade A loan regardless of the timeframe. Move down the list, however, and things change quickly.
Looking at the 2007 data, the default rate for Grade B and C loans is approximately 10%. As you get into Grade D and E loans, things deteriorate further as the default rate climbs into the 15-20% range. Finally, the Grade F and G loans have a 25-30% default rate.
These data also suggest that the overall default rates are artificially low due to the young age of the average loan. In fact, looking at 2009, the seven loans grades look essentially identical. Move back just one year, however, and the expected pattern of higher defaults amongst the lower credit grades begins to emerge.
Looking ahead
It will be very interesting to see where things settle out as those first loans begin to reach maturity. As for me, I suspect that my Lending Club experiment will have mixed results.
While it looks like my “high risk” portfolio (composed of Grade D/E/F/G loans with an average rate of 15.2%) might be headed for trouble, my “low risk” portfolio (composed of Grade A/B/C loans with an average rate of 9.9%) stands a decent chance of delivering solid performance.
If you have any thoughts or personal experiences regarding loan repayment (or lack thereof) on Lending Club, please share them in the comments.
Source: Lending Club Performance Statistics
Published on June 10th, 2009 - 10 Comments
Filed under: Saving & Investing
About the author: Nickel 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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June 10th, 2009 at 7:36 am
Very interesting. The data seems to suggest that it seems to work. How recently was the data collected? A week, month, two months?
I am getting more interested in this as you share your experiences.
June 10th, 2009 at 9:46 am
I am also interested in this. I am also frightened of it. I guess I should give it a try with a little cash….
If you had similar hesitations, how did you overcome your fear?
June 10th, 2009 at 10:12 am
I’m currently lending with Lending Club. Unfortunately one of my two loans fits into the C grade 31-120 days late for 2009 category. I don’t think the guy is ever going to catch up on his payments. It looks like I have reason to expect better results from my A grade loan… but one never knows.
June 10th, 2009 at 10:19 am
Joe R (#3) : You may be interested in selling your “bad” loan on the secondary market. You can really save yourself if you are worried about it. A couple dollar loss instead of a $25 loss sounds better to me..depends how risk-adverse you are.
Neal (#2): I’m taking the approach of investing $25/month for a year as my experiment with mostly A grade loans. I don’t have the capital funding to be able to invest a large chunk such as Nickel does
June 10th, 2009 at 10:21 am
If you are lending “blindly”, then stick to the A-D loans. But I’m a bit of a risk taker and I have been lending to E F and G when the story makes sense.
So far, so good. After a year, my returns are around 9.5%, which is slightly higher compared to an A loans only portfolio.
I think the trick is diversification + risk mitigation based on careful selection of loans. If you can do both, more power to you. Diversification: lend to as many loans as possible. Risk Mitigation: don’t lend to hokey stories, ask questions, make sure the person has a stable job, look at the credit numbers, etc.
June 10th, 2009 at 10:50 am
Joe, Makes sense.
Red, I’d be interested in knowing how you determine which loans to make. What is your process?
Nickel….could this be a post subject?
Pretty please?????
June 10th, 2009 at 12:26 pm
Hey Nickel,
After reading your initial post on Lending Club I decided to investigate and either invest and/or place a request for a loan. I read through their website and linked to the prospectus filed with the SEC. I was at first alarmed to see that their independent accountants gave them a “going concern” caveat–but I felt that that was in part due to the situation where they stopped funding loans (I believe in 2008) while their registration statement was pending. The other question I had was whether the loans they processed prior to the SEC registration were actually “legal”. Despite these reservations I thought I would give it a whirl.
I placed a request for a loan for $25,000 to consolidate current credit card debt and an auto loan. The request was posted on their site and immediately individuals started funding the loan request. However, the posting was tagged as “Credit under review”. I sent in the initial documents requested, and several days later received an automated phone call requesting documents (but not saying what they were). I reviewed my email and noticed one from lending club where they categorized what they needed for various situations; e.g. if you are self employed, if you are retired, if you are disabled, and if you are receiving a W2. I called Lending Club and was referred to the credit department. I spoke to an individual who appeared extremely overworked, discussed what was needed, noted that I had requested an extension for my 2008 income taxes (as I always do since my former accountant once told me that I had less of a chance of audit if I did so) and I sent in a 14 page fax (in addition to the initial 4 page fax) with what I thought was required–I am disabled, receive an income of over $7,100 monthly basically tax-free, own my home free and clear, own another small home free and clear, have a rollover IRA of over $400,000 and debts of approximately $17,000. I asked for the full amount of $25,000 just because it was available, and I thought I would do some future remodeling on my primary home. Bottom line, time was going by, the account was in “credit review” status and a long holiday weekend was coming up where I thought the staff would not be working to review files and change them from “credit under review” to “approved”. I felt that the only way to receive full funding was to have an approved status for a reasonable amount of time to enable investors to select my loan. At this time I already had about 40 to 50 investors with funding totaling $2000 to $3000. On the Friday before the holiday I sent an email to Lending Club (credit dept) to delete my listing unless it was at approved status by Friday evening, giving investors the chance to fund over the long weekend when many would have time to review potential loans. I also noted that if there was good reason to not approve my loan, I would understand, but thought that the possibility was nil. Well, per my request my file was deleted from an active listing–however I received an email stating “ADVERSE ACTION”–noting that I could not be funded due to :
Thank you for your recent loan listing request with Lending Club. Your loan listing request was carefully reviewed, and we regret that we are unable to approve your listing at this time, for the following reason(s):
Your income is insufficient for the amount of credit requested
Your application reveals that current obligations are excessive in relation to income.
Let’s see, I have a tax free income of over $85,000 per year (translating into a taxable income of over $120,000/year)—-my current obligations are $17,000 with no mortgage and the auto payment included in the $17,000.
The credit department either sent out a form email or just either did not have the time or the expertise to examine my income (which basically shows as nil on my 2007 tax return due to the non-taxable nature of my income-I had provided explanations along with supporting data showing the income coming in and that I had purchased my disability policy after tax, thus not being taxed on the benefits, if needed). I was afraid that their decision would be reported to the credit agencies and affect my FICO score which is in the 700’s. I wrote an email to all of the officers of the company,from the founders down (which I found in their prospectus), even asking for an apology if warranted, and noting that I would apologize if warranted) and all I received was an email in reply simply stating that I could refile my request for a loan if I submitted my 2008 income taxes. Well, my 2008 taxes will show the same as the 2007–a very low income since my income is essentially non-taxable. And, of course the email did not really address the questions I posed after I received their “Adverse Action” email.
I know this is wordy, but I do think that the problem is that their credit review department is understaffed and unable to make reasonable decisions for those whose profile does not fit into the “mold”.
I have two suggestions for Lending Club, in case they are reading this blog–1. Either staff up the credit review department and/or 2.Do not post the loan request until the credit status is “Approved”, thus giving investors the full 14 days to fund the loan.
Despite my unfavorable encounter with Lending Club, I am thinking of actually being on the investor side–I believe they have enough controls in place in case the firm goes out of business. But I have no intention of ever requesting a loan from them–first I don’t need it ,and second–their processing/operations need great improvement.
Hope you all have not fallen asleep by now
…Will
January 23rd, 2010 at 8:55 am
You should do an update on your LendingClub post, 7 A grade loans have now defaulted.
October 4th, 2010 at 4:26 pm
Any chance on providing an update to your Lending Club story. Found this on Google and would love to know the current status.
October 5th, 2010 at 2:47 am
After the treatment I received, I decided I did not need the aggravation of further dealings with lending club. So I have not followed up on anything to do with lending club. I find that I can easily invest my excess funds in ETF’s (exchange traded funds) that deal with preferred stocks and earn an annualized return (paid monthly) of over 7.9% with the chance of capital appreciation. A better deal in my opinion.
…Will