I was reading some other blogs this morning when I came across some interesting facts and figures about the P2P lending arena in general, and about Prosper and Lending Club in specific. Here are a few of them.
- In August 2011 Prosper and Lending Club issued $29.9 million in new loans. Just one year later in August 2012 those two same companies have shown big growth and issued $84.4 million in new loans. P2P lending is here to stay!
- Institutional investors are taking notice of Lending Club. Over $200 million in new loans have been issued to institutional and larger investors over the past 18 months via LC Advisors.
- In May of 2012 Prosper and Lending Club passed $1 billion in loans given. In October of 2012 Lending Club will surpass $1 billion in loans originated by itself. As of the end of August LC has issued $892,346,900 in loans.
- Over 98.9% of all investors with 100 or more Notes have experienced positive returns, while 86.23% have returns between 6% and 18% as of August 14, 2012.
- 71.85% of Lending Club borrowers report using their loans to consolidate debt or pay off their credit cards.
What the stats show me is that peer to peer lending continues it's steady growth, and most investors are going to see a positive return – almost 99% of investors with 100 or more notes are making postive returns. Not everyone in the stock market can say that. Even the institutional and larger investors are beginning to take notice of this fledgling industry, and I'm sure more of them will be jumping in on the P2P bandwagon.
20 Things About P2P Lending
Peter Renton of Social Lending put together a great 5 minute presentation for the Ignite event at FINCON12. It was pretty entertaining so I thought I'd share it here (wish I could have seen it live!). It's called 20 Things You Didn't Know About P2P Lending.
Lending Club Returns Now At 12%
A couple of months ago I was happy to report that for the first time my Lending Club returns had topped the 12% number that I had been trying to breach for some time now. For the past couple of months they've been up above 12%, and things were looking good. This past month, however, we had a bump in the road.
I had one new charged off loan (for a total of 2), as well as having 4 other loans go late, or continue to be late. Luckily the loan that got charged off didn't have a ton of principal left to repay, so my losses on that one are somewhat minimized. The other 4 late loans have a bit more principal to pay off, an average of about half of the principal when all four are combined. I'm hoping those ones get back into a payment schedule and don't get charged off!
- Net Annualized Return of 12%: Returns are down from 12.02% in July and 12.06% in June. They're still up from 11.98% in May, 11.61% in early April, all the way back to 10.53% in July of last year.
- Number of defaults.. Two charged off, with 4 new late: As mentioned above I have a new charged off loan. Wouldn't you know it, it's another high grade A loan! It seems like all the loans I've had trouble with have been A or B loans. Strange. Outstanding principal was $8.32. I also have four late loans in my account, accounting for $50 in outstanding principal Of the 4 two are grade B loans, and two are grade D. The one with the most outstanding principal, $22.82, is a D grade loan that just started making payments. Ouch. Let's get back on track guys!
- Thirty five loans have been paid off early: Eleven were A grade loans, ten were grade B loans, nine were C grade, one grade D, three grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. The earlier a loan is paid off, the less likely you are to be making money, and in some cases you may actually lose money! Another reason to invest in lower grade loans.
- I’m diversified by investing small amounts across multiple loans: I've had 184 loans since joining (143 issued and current loans, 35 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: Over 98.9% of all investors with 100 or more Notes have experienced positive returns. 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.
Nickel Steamroller's Lending Club portfolio analyzer does a better job of giving you an idea of your actual ROI. 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 10.68%. 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!