Lending Club has been around for a few years now, and while they and other P2P lending sites got off to a rocky start, I think they've started to hit their stride. Lending Club recently announced on their 4th anniversary that they have now originated over $300 million in total loans and paid out over 22 million in interest to investors. So they're no longer the little engine that could, they're now becoming the next big thing! Still, there are still those who don't believe in P2P lending, mostly because they don't completely understand it.
When I started lending with Lending Club I wasn't sure what kind of returns I would see, and as such I was pretty cautious with who I lent money to. I was only investing with Grade A and B borrowers to begin with. Since then others have convinced me that investing with some lower grade borrowers is a sound idea, and I've seen my returns grow from somewhere in the high 8% range (not too bad) to the point where I'm now pushing 11%.
All I know is 11% net annualized returns are a lot higher than I'd be getting in a high yield savings account. The longer I've been using Lending Club, the more comfortable I am with the idea, and the more money I'll consider putting in.
To start off at the beginning, check out my original review of lending club below:
Lending Club Returns Above 10.76%
So how are my Lending Club investments currently doing? Here's a snapshot of my account from earlier today showing that my returns are pushing 11% now.
- Net Annualized Return of 10.76%: Up from 10.53% in June, and 10.13% before that. That puts me in the 55th percentile. My returns are higher than 55% and lower than 45% of all investors. So that means I've already reached my goal of doing better than 1/2 of other investors. Now to make it better than 75% of other investors!
- Number of defaults remains at zero: Despite all odds I'm still showing zero defaults on my account, despite having given out over 100 loans so far. I'm actually surprised I haven't had at least one or two. I do currently have one loan that is late, however. The funny thing is that once again the late loan is one of the Grade B loans, not one of the lower grade ones. Go figure.
- Fourteen loans have been paid off early: Eight were A grade loans, and the other three were C grade loans, two were grade B and one grade E. Looks like grade A loans, while they're more likely to be paid back, may also be more likely to pay of early – reducing returns.
- My account balance still going up: I currently have $2,578.98 in my account, with another $800+ ready to invest. I'll be the first to admit that the last couple of months I haven't added many loans as I've been distracted by other things. I'll probably be trying to invest that extra $800 soon though.
- I’m still diversified by investing across a large number of loans: I've got 106 loans, with no more than $25 in each loan. That way if I do have defaults, while my return may go down, my risk will be minimized. Lending Club noted earlier this month, that 100% of their investors who have invested 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
So it looks like my strategy I laid out a few months ago of adding more risky C, D and F grade loans is paying off so far.
Risky Loans Still Defying The Odds With Zero Defaults
I mentioned a while back that I was changing my Lending Club investing strategy and starting to invest in more higher risk lower grade loans. The rationale was that you can still find people that are relatively good risks, but who have bad credit. Most of these are going to be loans from people who have high incomes and steady employement, but for one reason or another have had a hiccup in their credit causing them to be lower grade.
I've invested in a bunch of these Grade C-E loans over the past year, and since doing so my returns have steadily climbed. I would have expected to see a few defaults in there, but so far I've been investing in the riskier loans for about a year now, and none of them have defaulted yet. Would you think some of them will still default despite my early success? Possibly. But I'm hoping my gamble on those with steady jobs and high incomes will mean I wont' see many defaults.
Here’s where my NAR stands now, getting better every month. Now standing at 10.76%. I'm hoping I can break through that 11% threshold next month!
Lending Club Strategy
Here's the basic strategy I've been using with Lending Club over the past couple of years.
- 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.
- Borrower answers to investor questions: Because of privacy and liability concerns you can no longer ask whatever question you want from borrowers, but only ask from a pre-set list of questions. It's still good enough for me I think, although I'd prefer being able to ask specific questions.
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!