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Lending Club Update – March 2011

Written by Nickel - 14 Comments

Hmmm… I just realized that it’s been awhile since I last updated my Lending Club progress. With that in mind, I thought I’d share some data to bring everyone back up to speed. For starters, my net annualized return (NAR) stands at 8.92%, which is a bit lower than where I closed out 2010.

Why the drop? Well, unfortunately, I suffered another default. When I last updated my Lending Club portfolio at the end of 2010, it looked like this:

  • 395 loans are current
  • 41 loans have been paid off early
  • 1 loan is currently 16-30 days late
  • 8 loans are currently 30-120 days late
  • 7 loans have defaulted and/or been charged off

As of right now, it looks like this:

  • 363 loans are current
  • 64 loans have been paid off early
  • 4 loan is currently 16-30 days late
  • 13 loans are currently 30-120 days late
  • 8 loans have defaulted and/or been charged off

As you can see, 23 more borrowers have paid off their loans early, but I’ve also seen a shift toward more loans being late, with 4 being slightly late and 13 being severely late. Based on past experience, it’s unlikely that those severely late loans will get back on track, so I’m fully expecting additional defaults.

If you total up the numbers listed above, you’ll notice that my total number of notes hasn’t changed since the beginning of the year. The main reason for this is that I’ve gotten too busy to keep up with the note picking, so I’ve just been transferring my cash out to our savings account every once in awhile.

Going forward, I expect my returns to dip a bit further – not just because I have more notes showing up as late, but also because the average age of my portfolio is still increasing, especially since I haven’t been adding new notes. As notes get older, the likelihood of default increases (at least in a cumulative sense), so my default rate will presumably increase at least a bit further in the coming months.

So there you have it… My current Lending Club performance in a nutshell. If you’ve been investing with Lending Club, I’d love to hear about your experiences.

Published on March 30th, 2011
Modified on June 28th, 2011 - 14 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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» Lending Club Update – August 2012
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» Lending Club Update – March 2010 Performance
» Lending Club Update – May 2011 Performance
» Lending Club Update – April 2010 Performance
» Lending Club Update – October 2011
» Lending Club Update – March 2013

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14 Responses to “Lending Club Update – March 2011”

  1. 1
    Brian Says:

    It takes a little bit more time, but I’ve been using a strategy that involves selling all notes that even get to “Grace Period”. I can usually sell Grace period notes for break even or small profit (when considering interest already earned on the note since initial investment).

    If they do go to late, I then sell them for more of a loss… but still can in almost all cases get 90% + of my initial investment money back when considering interest already earned.

    I’m not convinced this is the best option, is there are a lot of “grace period” loans that end up getting back current, and I miss out on interest with those.

    But on the peace of mind side not having any lates feels nice lol

    I’m averaging around 10% a year (only about a year of history though) with this method on 600ish notes.

  2. 2
    Tom Says:

    That’s about 10x my savings account return, so it sounds like you’re doing well!

  3. 3
    Peter Renton Says:

    Nickel,

    Thanks for the update. I have about 1,700 notes (average age 10 months) and have had a few extra defaults this quarter as well. But because I invest One question for you – are you planning on starting to reinvest soon or are you on hold indefinitely?

  4. 4
    John Says:

    I’m still very slowly adding investments. I started in November of 2009 and my account is only worth $500. The quality of notes to invest seems to have gone down since they upped their limits to $35k and 60 months. I had to scratch around for while the last time I invested in a new note before I found what I thought was a good enough return to justify the risk.

    So far no defaults, but one borrower has been on a payment plan since October. They were scheduled to go back to full payments this month but they made another partial payment. At least they are making payments, even if they are only getting a few cents of the principal paid each month. My NAR is just north of 12% according to the site.

  5. 5
    Paul Says:

    I’ve been using an approach similar to Brian’s in that I sell notes that look to be getting into trouble, but I’ve gotten even more conservative about it. I like to invest primarily in notes of people who state that they are consolidating debt. I then keep an eye on their credit score during the life of the loan. If their score starts dropping too much I immediately sell the loan.

    I also like to look around on the secondary market and buy notes that have fewer than 30 payments left (to avoid scammers and other ne’er-do-wells) and a rising credit score. These seems to give the best indication of a serious borrower who wants to maintain a good financial standing.

    So far, no defaults, or even any grace periods or late payments. My capital investment at this point is $750, so not a large sample to judge from, but it seems to be working so far. I’m open to hearing any wisdom on how I can improve on this.

  6. 6
    Dan B Says:

    Nickel…..Your NAR at the end of this year will recover to the 6.2-6.7% range. I say “recover” because it’ll go lower than that within the next 2 months after you get hit with 6 or more defaults, one after another.

    For the people who hold 100 or fewer notes……your sample size is so small that it’s irresponsible to make any comments on your performance. In other words it’s very possible to do everything wrong & still show a 12-13% return…………or very possible to show a return of 3-4% while doing everything right. Simply put, luck or the lack of luck plays a really big part in your performance when you have so few notes.

    Once you get up to 400+ notes it becomes possible to make some intelligent observations about your performance.

  7. 7
    Paul Says:

    Well, Dan, thanks for stating the obvious. Perhaps instead of telling us how small our samples are, you could share some wisdom on how to better pick the loans.

    Do you have a different method that’s working better for you than what’s been stated here?

  8. 8
    Dan B Says:

    Well Paul, you’re missing the point. It’s impossible for me to come here & share with you “some wisdom on how to pick the loans” because for all I know you’ve got the perfect system & the perfect set of parameters. It is entirely possible that you Paul may in fact have an approach that cannot be improved on. Then again you might have the worst system in the history of p2p.

    So your contributions here are essentially just “noise” to me until you get that sample size up. And my contribution to the group here is to suggest that people should ignore advice from other people who have ridiculously small amounts of loans and/or people who have been involved for less than a year. I use to share my approach freely but I don’t see any upside to it really since I don’t care to follow anyone else’s approach in any case.

  9. 9
    Andy Says:

    I have been with Lending Club Since Feb, 2009. I have around 225 notes totaling around 7,000$. I’m a true believer that Lending Club is understating it’s default rate. All loans in the 12-18 month window seem to have a very very high default rate. To include new loans in the default rate calculation is a waste of time. I hand pick every note and never invest in people who have prior defaults, are above 15% DTI, or make under 4K/month. Right now I have about 8 loans in default, 4 31-120 and 2 16-30 days late (thats 14 out of 225 notes!).

    It says my NAR is 8% but i’m calling BS

  10. 10
    Dan B Says:

    As I’m sure you’re aware NAR & actual real world returns are 2 different things entirely. NAR doesn’t take into account idle cash, in funding time or trading account activity. So for most investors you can subtract anywhere from 0.75-1.25% off of your NAR to get to a real world return.

    However, Lending Club’s default rate is around 2.5% per annum. Your numbers after 2+ yrs. are actually a bit under Lending Club’s average default figures. If you run the math you’ll see that I’m correct. (225 notes x 2.5% x 2 yrs)

  11. 11
    Andy Says:

    Correct, but the issue is tht all of these very late or defaults happen in the 12-18 month mark. I have around 90 notes falling into that window shortly, so I’m scared.

  12. 12
    Dan B Says:

    90 is a real small sample so there’s no way to predict what will happen. You may very well get lucky & have few problems. I’ve been at LC since Nov 2009 & have around 500 notes currently so I can understand your concerns. I’m sure that I too have 90 or more notes within that 12-18 month window right now. The only tip I can offer you pro-bono is that you might consider selling the weaker ones among those 90 on the trading platform. I have all notes over 3 months old with declining credit scores perpetually offered for sale on the trading platform at 2% premium. It might give you some peace of mind & reduce your exposure while making a small profit at the same time………though it is a tax hassle.

  13. 13
    Seth @ Boy Meets Food Says:

    I used your method for picking notes, and now am sitting on about 10% defaults. So, my return is something horrible like 2%.

    I’m yanking my money out every time I build up a few bucks. I’m hoping I don’t actually lose money on this “investment”.

  14. 14
    Lawrence Knowlton Says:

    I wish lending club would give you tools to see where your investment standing is at (i.e. overall gain, overall loss, breaking even). The problem I’m sure is that Lending Club doesn’t want to tell you and hopes that you’ll just keep on lending anyway. It gives me a sense of helplessness when absolutely NO defaults have ever been recovered, for me in any way. You make a great return (as compared to banks) and wind up losing it all in defaults. I hope to Gods that they’re not pulling some kind of huge ponzi scheme. As you can see, I’m in a state of: do I invest again (put another bullet in the chamber) and gamble (Russian roulette) or do I wait until the economy stumbles back onto its feet?

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