It’s been a bit over a year since I started investing with Lending Club, so I thought I’d put together an overview of my experiences. For those that haven’t been following along, I first set up two test portfolios focusing on low risk vs. high risk loans.
For these test portfolios, I let Lending Club auto-select the loans. In the time since then, I’ve continued investing by selecting my own loans. Overall, I’ve invested in a total 289 notes, 20 of which have been paid off early.
Thus far, my results have been quite good, though it’s still too early to say for certain, as all of my loans have a 36 month term. As such, there’s still a lot of time for my borrowers to get themselves into trouble.
Rate of return
I’m currently earning a “net annualized return” (NAR) of 10.83%, though that number’s a bit generous, as it doesn’t consider the effects of idle cash.
According to Quicken, my “real-world” performance has been about 2% below my NAR, meaning that my actual annualized return has been just short of 8.90%. That’s still a nice return, but not quite as high as Lending Club would have you believe.
In terms of my relative performance, I’m in the 48th percentile, meaning that 52% of Lending Club investors have a higher NAR than I do.
Of course, you need to be careful when interpreting such statistics, as the numbers are likely skewed upward by the large number of new(ish) loans that have been issued, and which haven’t had time to go bad.
Defaults and delinquencies
Speaking of loans going bad… I’ve had exactly one borrower default since I started. This note was part of my auto-selected, “high risk” portfolio. To date, I haven’t experienced a single default on a hand-selected note, though I suspect that will change soon.
Overall, I currently have four notes that are 31-120 days late, though one of these borrowers is on a modified payment plan and has been making regular, albeit partial payments. I fully expect that loan to get back on track, but I’m less optimistic about the others.
I’ve dabbled with selling questionable notes to reduce risk, but have had mixed success. While I’ve been able to sell some notes, others have been impossible to unload, even with a fairly steep discount.
While defaults and delinquencies are frustrating, they’re part of the territory. Lending Club is very upfront about the fact that a small percentage of your notes will likely default. It remains to be seen how accurate their estimates are, but you shouldn’t let a small number of defaults chase you away.
Thoughts on the future
The primary downside to investing with Lending Club is the time commitment. Sure, I could just let them auto-select notes for my portfolio, but I’m just not comfortable with that.
Adding to this problem is the fact that I like to keep my notes small to reduce risk. Thus, I need to find a relatively large number of acceptable borrowers on an ongoing basis. Again… This can be a rather time-consuming process.
This problem has been exacerbated by the fact that Lending Club has recently started offering 60 month loans. While the rates on these longer-term loans are somewhat higher, I’m not crazy about the idea of stretching out the repayment period any longer than it already is. Thus, I tend to avoid such loans, further shrinking my pool of candidates.
Of course, the “low risk” portfolio that Lending Club assembled for me back at the start is performing admirably, with 100% of notes being paid on time. Thus, while I like to think that my loan picking efforts are worthwhile, maybe I just need to get over myself and rely more heavily on the auto-loan selection tools…
What about you?
If you’ve been investing with Lending Club, I’d love to hear about your experiences. How long have you been doing it? How many notes do you have? And how is your portfolio performing?