I‘ve been investing in Lending Club for quite a while now and I've been pretty happy with how well it has performed. To be honest it has done better than my expectations. My returns are better than what I would get in a a high yield savings account, while at the same time helping others to get loans at lower rates than they would get at a traditional bank or via a credit card. It’s a great way to consolidate higher interest debt. Peer to peer lending is only going to get bigger from here I think.
It's been about 3 months since I did an update, and I thought now would be a good time to do an update on my riskier lending strategy that I've implemented in the past 5-6 months.
Lending Club Returns Above 10%
So here’s a quick look at the returns I've been seeing lately
- My Net Annualized Return is 10.17%: Up from 9.64% in January that number puts me in the 49th percentile. That means my return is higher than 49% and lower than 51% of all investors. My goal is to be doing better than 1/2 of Lending Club users, and I'm almost there!
- Zero defaults: Last time I reported my Lending Club returns, I was showing zero defaults, but had one borrower in the grace period. According to Lending Club that borrower was promising payment, and they've now had a couple of months of on time payments. That's good news.
- Nine loans have been paid off early: Seven were A grade loans, and the other two were C grade loans. Looks like grade A loans might be harder to make money on because the borrowers also tend to pay off early!
- My account balance has continued to increase as I become more comfortable with using Lending Club as part of my investing strategy. I currently have $2,035.45 in my account, and I’m slowly adding more most months.
- I’m still diversified by investing across a large number of 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.
So my strategy of adding a few choice hand picked and riskier loans seems to be paying off as I'm seeing my returns increase from where they were 6 months ago.
Low Grade Loans Can Have Good Returns
My returns that I've been seeing are slowly improving as I've taken on a new investing strategy suggested by Matt at steadfastfinances.com. He started a Lending Club investing club where he sends out hand picked high risk loans every month by email. He invests in lower grade borrowers who he has deemed to be acceptable risks. The loans he chose were Grade C or D for the most part, and while their credit scores weren’t necessarily the best, Matt felt that they were acceptable investment risks because they all had good professions, solid job history and security, and good payment histories.
Over the last 5-6 months I’ve been using this strategy to see if I can get my net annualized return up above 11-12% based off of his suggestions in his Lending Club investing club. So far I’ve gotten my returns to rise from somewhere around 8.5% up to where it is now above 10.17%. So I'm slowly inching towards that 11-12% I was shooting for. Who knows, maybe one day I’ll be near the 14.11% Matt is currently seeing.
It should be noted that Matt has now had several defaults on his loans and is adjusting his strategy a bit. Luckily I haven't had any defaults, in part I think because I cherry picked only higher income borrowers from his suggestions.
Here’s where my NAR stands now, slightly above average. I hope to move up a couple of columns there:
Lending Club Strategy
My strategy I used in the past for Lending Club, and the strategy I’ll still be using to some degree:
- 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.
- Loans over 60% funded: When other people have invested in the loan, a lot of the times that means that they’re a better risk because others have done their due diligence and agreed to invest. Not always the case though so be careful.
- Borrower answers to investor questions: I like to ask questions from potential borrowers. You can tell a lot about someone, and about how they’ll do repaying the loan, by how they answer the questions.
So that’s the basic strategy that I’m using to invest in Lending Club right now. What strategy are you using to invest? I’m curious to know what is and isn’t working for all of my readers.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!