My Lending Club account has continued to show good returns despite the fact that this month I had another loan go late. My net annualized return is still above 12% (which was my goal to reach a year or so ago), and thankfully the loans that have gone late have already repaid more than 3/4 of their loan principal, so I wouldn't be losing as much as some other loans if they do in fact default.
Lending Club has continued their growth and they have now issued $775,060,475 in loans to date. Others have mentioned that they think they will have originated in excess of 1 billion in loans by the end of the year. I think that might be possible.
So just what are people using the loans from Lending Club for? Mainly for debt consolidation, as over 70% of people are reporting that they are using the loans to pay off debt or consolidate credit cards. I can get behind a goal of paying off debt or credit cards – as long as people are actually getting their situations under control.
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Returns Down Slightly At 12.02%
Over the past month or so since my last Lending Club report, where I surpassed 12% net annualized returns for the first time, I've seen my returns show a slight dip from 12.06% to 12.02%. The reason? I think it's because I've had another loan go late, and the two loans already late are still working out payment options. Hopefully they'll get back on track.
- Net Annualized Return of 12.02%: Down from 12.06% in June, but still up from 11.98% in May, 11.61% in early April, all the way back to 10.53% in July of last year. My returns remain above 12% as I add new higher risk loans to my portfolio.
- Number of defaults.. one, with 3 new late: I've got one charged off loan on my account. Over the past couple of months I've had two loans that have been a bit behind, a grade A loan, and the other a grade D loan. They're still late this month but have made arrangements for payments. Unfortunately there is one more new late loan this month, a grade B loan. Once again the few issues I've had have tended to be on higher graded loans. Go figure.
- Thirty two loans have been paid off early: Eleven were A grade loans, ten were grade B loans, seven were C grade, three grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I've started investing in more higher grade loans.
- My account balance increasing, re-investing returns: I currently have $2,851.14 in my account, with $80.15 of that ready to re-invest.
- I’m diversified by investing small amounts across multiple loans: I've had 185 loans since joining (148 issued and current loans, 32 paid off), with no more than $25 in each loan. In other words, I'm diversified across a decent amount of loans, lessening my risk from any one loan going into default or getting charged off. Of course to be fully diversified I believe Lending Club recommends 800 or more notes. I'm not there yet.
NOTE: 83.17% of Lending Club investors with 100+ Notes earn returns between 6% and 18%. 100 Notes can be purchased with a minimum investment of $2,500.
What's Your Actual ROI?
When you're looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn't really standardized, and they don't take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller's Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.96%. It also gives me quite a few sell recommendations, particularly on some of my older lower interest loans that I did when first starting out. Those particular loans tend to be grade A or B, and have interest below 8%.
Evolving Lending Club Strategy
Here's the basic strategy I've been using with Lending Club since I started investing. The strategy has changed a little bit over time to include more low grade loans and a few loans with higher balances.
- Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
- Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
- Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
- Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that's what I'm doing with my Lending Club portfolio right now, and how I'm investing.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!