While I didnt write about it for quite a while on the site, I joined lending club a while back. For those of you unfamiliar, lending club is peer to peer lending, where people put up an amount they want to borrow, which is then graded by the site, and assigned an interest rate. Investors like me can then look over the notes, read what each person wants to borrow for (the majority that I’ve seen are for credit card consolidation) and loan them an amount of money in $25 increments.
For my trial run with lending club, I decided to invest $300 the first time, and decided that if I didnt like it or had a lot of charge offs, I’d write it off as a failed investment and expensive lesson and just close my account and walk away. Thankfully, it didnt work out that way, and I can now say that this is the highest return account in H and I’s very tiny portfolio (which mostly consists of savings accounts). H and I have savings accounts with balances much larger than this, and lending club account is still generating 10x times the interest. I guess that will just be what it is, then.
I after about 3 months and nothing really went sideways on me, I decided to put more of my cash stash in there, and started up a second portfolio in lending club. This one has been fairing a bit worse in terms of interest generated, but it’s larger so it throws off more cash each month. At this point, i’m very close to being able to use my repayments and interest payments to purchase a new note every month – which will be super cool!
As you can see, everything has gone relatively smoothly with the lending club in terms of the return im getting. The one complaint that I do have with the service is that it takes up a lot of time. When you make the first investment, they’ll pick out some sample portfolios, tell you the interest that you’ll get, and you can easily place all your notes. However, once you’re purchasing them one at a time, it seems like it takes a lot longer than I feel like it should. It takes time to select a note, etc and then once all that is done, sometimes the notes dont get funded/issued for whatever reason. At that point you’ve got to go back into the service and pick out a new borrower for the money. While not the worst thing ever, sometimes I wish it was quicker – I swear I’ve had to repick a borrower about 6 times for the same $25.
Readers: Do you use lending club? Have you considered giving it a try? Given the small returns you’re getting from a traditional savings account and the returns from the stock market that seem all over the place, I’ve found this is a good place to store a portion of my capital.
I put $500 into a lending club account and I’m up to $540 today. The problem with living in Texas is that I can’t originate loans so I can only buy them on the secondary market, which makes it very time consuming to find new notes to invest in.
The other bad thing about Lending Club is that it’s not as liquid as some other higher return investments like stocks. If I wanted to get money out of Lending Club immediately I’d have to sell individual notes on the secondary market, which is a time consuming process in the first place and also could take who knows how long to get someone to buy at a reasonable price.
Congrats on doing well. As long as you don’t need the money soon I think it’s a great place to put some cash.
Great points kevin – I had never really thought about the liquidity for lending club (one of the reasons I did it in the first place because I was using side income and if it went away, I wouldt be terribly broken hearted).
That sucks that you cant get individual loans where you live – that must be an even bigger pain than what I’ve got!
I do think it’s worth it for the returns though.
I have been an investor for over three years at Lending Club and two years at Prosper. I have a large investment at both companies and I am reinvesting over $1,500 a week. So, if I had to pick notes one by one this would be a full time job.
What I suggest to you and your readers is that you setup some filters based on your preferences. Now, this means you don’t get to read every note, so you have to be comfortable with that. But this way I can easily invest in 50-60 notes a week and spend just 3-5 minutes doing so.
Thanks for the feedback peter – interesting to see what someone who has been in the game much longer than me has to say about it. I’ll have to look into setting up some filters for my notes to lower the ‘annoying’ factor of picking them out.
I started with Prosper last year, but I think I’ll add new investments with Lending Club. Prosper has been OK, but Lending Club is much bigger and has a lot more selection.
Interesting – I never even really considered prosper when I looked into it! I’ve been having great luck with lending club, and have no need to switch
We have been investing at Lending Club for a while too and have really good experience. We haven’t had any defaults or late payments yet.
My wife and I make Lending Club investing decisions together. We are set it and forget it type investor so we don’t track our notes closely once we invest or try to trade on secondary market. Our focus is to eliminate suspect loans on the front end before we invest. Thus we focus our time on analyzing patterns in historical data. My own strategy is at 21st revision and rarely spits out more than a dozen currently available loans a week.
We continue to refine our note investment strategy and automate our note selection process to reduce time we spend on note selection. Recently we, on requests of our friends, opened up our strategy and process through PeerCube.
IMO, key to success is diversification across loan purposes, geographies, and demographics; distribution across hundreds of loans; not getting too greedy and focus on squeezing out another 0.01% return. As long as you feel the returns are reasonable for the level of risk, you will be happy with peer to peer lending.
That’s the way I feel – I think that if you’ve got a good strategy and are willing to diversify (lending club being one of many of your investment options) than you will be more than satisfied with your return!
I got introduced to P2P a few Months ago and now I’m hooked. It’s not liquid, but for me that’s a good thing. I threw money into both lending club and prosper to see which way I wanted to go. I’m sticking with prosper. LC’s loans are way too high. I’m amazed not more loans are not going bad with them. I like $4K as my max loan. I feel the payment is low enough for the borrower to maintain, my risk management.
you make great point rick – I did notice that with lending club, people often want to borrow tens of thousands of dollars! I’m aware that this is the avg credit card debt, but it seems crazy that they want to knock the whole thing out with lending club – esp for the people who have never borrowed from it before, I’d be a little wary.
Based on the analysis of historical loan data for Lending Club, the defaults, charged-off, and late payments are higher for smaller amount loans. From my blog post Lending Club Loan Amount and Defaults https://andirog.blogspot.com/2012/07/lending-club-loan-amount-and-defaults.html
“Loans for very low amounts seem to have higher default rate for both 36 month and 60 month loan terms. Loan amount below $2,000 for 36 month loans and below $5,000 for 60 month loans have exceptionally high default (greater than average plus one standard deviation).”
The other side of your argument about low amount loan is that if a borrower can not manage such a small amount of loan by his/her income and need to borrow from Prosper/LC, s/he is not really doesn’t have his/her financial house in order.
Thanks for the comment anil – it seems that i’m pretty pretty lucky because I havent had that much time on the loans, but i’m still going well so far. I find it really interesting that people who borrow lower amounts are more than 1 st dev away from the mean failure rate. That is pretty shocking.
I am a medium sized investor, but have been making $5,000 investments weekly most of the summer. I created a mathematical model that picks the highest profit loans automatically once I download the file that contains everything available in which to invest. It takes a few minutes to make such a large order.
Soon I will have a website that people can subscribe to in order to take advantage of all the legwork I’ve done.
I have never heard of Lending Club, but it sounds like its worth a try. Even ING’s rates are crap these days, and personally, I don’t invest in the market, so it’d be nice to get a bit more than 1% back. I’ll start up a small account, and let you know how it goes next time you update.
I must be the only person losing money with the P2P lending. I played around with 1k or so during 2008-2009 and only returned something like .03%. I think maybe it was the time I invested (housing boom).
that could have been dominique – I havent really heard of anyone losing money yet (though I did read articles about it from around the time period you invested). I think standards have tightened up quite a bit since you got in the game. Are you willing to try it again?
I suggest you try again! Your 0% returns were a consequence of at least (1) Prosper 1.0 had quite low standards then (assuming you invested with them) and (2) the great recession. With enough diversification (40, $25 loans might not be enough), you should achieve better.
I live in a state that doesn’t allow this but I would be really interested in how Kevin gets around state laws! PS I love your spam comment.
Kevin buys his off the secondary lending club market – I’m not sure where that is. I’ll ping him and see