Lending Club – July 2010 Performance
This is just a quick update on my Lending Club performance. During the month of July, I experienced my second charge off, dropping my net annualized return into the 9.5% range.
I actually knew this one was coming because the borrower in question never made a single payment. Nice, huh? This is one of the reasons that I’ve been attracted to buying notes on the secondary market. While I still can’t be sure that borrowers will live up to their obligations, I can at least weed out the total deadbeats.
Going forward, I’m thinking of pausing my new contributions. I’ve now built up a reasonably large portfolio, and will likely focus on reinvesting the proceeds as opposed to adding new money.
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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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6 Responses to “Lending Club – July 2010 Performance”
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August 17th, 2010 at 5:29 pm
Just because a borrower makes a payment, it doesn’t really mean they are any more safe… I bought a loan on the secondary market, and received 3-4 payments, then nothing. Now the loan is charged off. Granted, it was a high-risk loan, but still… everything was going well, and then they quit paying.
August 17th, 2010 at 6:07 pm
I stopped reinvesting int and pri earlier this year. 8 charge offs and more to come. Down to 7.7% yield.
August 17th, 2010 at 7:00 pm
My three year Prosper experiment is weeks away from completion, the end result being my $500 has magically become $450. I’ll let the math nerds figure out that return.
My conclusion is this: If these borrowers could not demonstrate sufficient credit-worthiness to secure a loan from a large lender, why on earth should I risk my money with them?
Two failed loans out of eight, and one gal didn’t even make an effort to pay it back before racing to declare bankruptcy. Caveat emptor.
August 17th, 2010 at 9:30 pm
Seth: No, it doesn’t protect you from people who eventually default, but it *does* protect you from outright scammers who qualify for a loan and never make a payment. So far, I’ve had two defaults (300+ loans, approximately 14 months of lending) and they’ve both fallen into this category. Buying notes with at least one payment made would’ve protected me from these two.
I should also note that I apply the same criteria to loans on the secondary market that I’ve applied in “regular” lending, so I’m (hopefully) still avoiding the sketchiest borrowers.
August 18th, 2010 at 11:32 am
Leigh:
I agree completely. My three year experiment with Prosper is also about to end (thankfully). In total I invested in 89 notes having 19 defaults so far. I’ve lost about $60 out of $5K invested.
If these borrowers were trustworthy they would not need to borrow from Peer-to-Peer programs, they would get financing from regular channels (banks, credit unions, etc).
Since Prosper went into silent mode in 2009 I started investing in Corporate Bonds with a much better track record so far.
August 18th, 2010 at 12:19 pm
I’ve read about the Lending Club in various blogs and forums. It looks like a good deal if you get responsible borrowers, but it is too much hassle for me. I prefer to invest in mutual funds for the long haul. I am nowhere near retirement age, so I can ride out market cycles to get at least 10% for my investments.