I‘ve been investing with Lending Club for a couple of years now, and I've gone from a skeptic when I first started investing with the service, to someone who is convinced that Lending Club can be an integral piece in any person's investing strategy. I've seen good returns since I started, and despite warnings from a variety of sources about how the site was a flash in the pan and not something you'd probably want to put your money in, I've stuck with it. Over the years I've used the site I've only had one loan get charged off. Since I was diversified, however, I'm still getting 11.44% returns. Not too bad.
This past week Lending Club announced that they had reached $500 million in loans originated since inception (2007), further showing just how strong the platform is.
Lending Club, the leading platform for investing in and obtaining personal loans, today announced that $500 million in loans have been originated via the platform since inception.
Lending Club serves the needs of prime consumers who choose the lower interest rate loans available through Lending Club over more expensive credit cards.
The San Francisco-based company commenced operations in 2007 and has exceeded 100 percent growth in loan volume each year since. More than a quarter-billion dollars in loans were originated on the platform in 2011, more than doubling the previous four years combined. Lending Club now averages more than $1 million in loan originations per day, with an average loan size of $10,945. The majority of borrowers (66.7 percent) say they use Lending Club’s fixed-rate personal loan platform to pay off their high-interest credit cards.
So Lending Club according to their site is originating more than $1 million in loans per day. I would say that they're here for the long haul, and if you haven't checked them out yet, you should give it a shot!
Interested in my original Lending Club Review? check it out below.
Returns Increase To 11.44% And Another Late Loan
This past week I started looking at my taxes and figuring out how much interest I earned last year with Lending Club – as it is taxable income. If most of your loans are smaller ones with Lending Club like me, you won't be getting any tax forms, and it can be quite a confusing process figuring out your interest earned. If you're as confused as i was when I started looking at it, check out my post on Lending Club and taxes.
This past month my Lending Club account had it's first charged off loan in over 2 years of using the site. While it was disappointing, thankfully I didn't lose much on the deal because the loan was over 1/2 paid off already. Despite the charged off loan, my returns increased this month again to 11.44% as I added more “high risk” loans. Unfortunately I had another loan go into the “16-30 days late” category. We'll see if they get back on track, it shows that they have scheduled a payment.
- Net Annualized Return of 11.44%: Up from 11.23% in December, 10.93% in September, 10.76% in August and 10.53% before that. At last check my returns were higher than 62% and lower than 38% of all investors on Lending Club's compare feature. Unfortunately the compare feature in Lending Club account is now gone completely, so I can't keep up on those numbers anymore. I understand the numbers weren't completely accurate, but it was still a fun to compare.
- Number of defaults.. one and counting: Last month I had my first charged off loan, a Grade B loan. Go figure. Just goes to show that it isn't always the high grade loans that peform as well. I've seen quite a few Grade A and B loans either pay off early, or as in this case – get charged off.
- Twenty two loans have been paid off early: Nine were A grade loans, six were grade B loans, five were C grade, and one grade E and 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 still going up: I currently have $2,690.24 in my account, with $195.47of that ready to invest. I'll be finding some loans later today.
- I’m still diversified by investing across a large number of loans: I've had 153 loans, with no more than $25 in each loan. In other words, I'm diversified across a large number of loans, lessening my risk from any one loan going into default or getting charged off.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
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 10.33%.
Those are still better than the returns I've seen in the stock market this year, or in my savings account.
Lending Club Strategy
Here's the basic strategy I've been using with Lending Club over the past couple of years. I've fudged on this a bit in the past few months due to the fact I'm buying more low grade loans, but it still holds mostly true.
- 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!