Lending Club Experiences

[Onomatopoeia]

Originally Posted by Mama Zappa

Oh - and they've added a lot more "canned" questions to the list of questions you can ask borrowers.

That's one of the things I don't like about the trading platform; I can't ask borrowers questions.

[Mama Zappa]

Originally Posted by Onomatopoeia

That's one of the things I don't like about the trading platform; I can't ask borrowers questions.

True, but can't you look at the original loan to see what questions were asked back then? Not quite the same (what if nobody asked what YOU want to know), but better than nothing.

Even original lenders can't ask borrowers questions once the loan's been disbursed, either, like "Dude? Why is your credit score TANKING???".

[Onomatopoeia]

Originally Posted by Onomatopoeia

Monthly Journal Note (5/1/2011)

Join date: 10/15/2010
Investment to date: $750
Payments to date: $168.81
Interest to date: $29.47
Notes currently held: 28
Current Net Annualized Return: 11.41%

Monthly Journal Note (6/1/2011)

Join date: 10/15/2010
Investment to date: $750
Payments to date: $208.70
Interest to date: $36.66
Notes currently held: 30
Current Net Annualized Return: 11.67%
Payments since last period: $39.89
Interest paid since last period: $7.19
Actualized return for month: 11.50%

Okay. Good. I'm convinced. I think it's time to invest a few more schkelim.

[amarone]

Originally Posted by Onomatopoeia

Monthly Journal Note (6/1/2011)

Join date: 10/15/2010
Investment to date: $750
Payments to date: $208.70
Interest to date: $36.66
Notes currently held: 30
Current Net Annualized Return: 11.67%
Payments since last period: $39.89
Interest paid since last period: $7.19
Actualized return for month: 11.50%

Okay. Good. I'm convinced. I think it's time to invest a few more schkelim.

How do you get that report?

[Chessic Sense]

Originally Posted by amarone

How do you get that report?

I think (s)he made it on her own. Most of it is available from the Accounts page, and even more when you click "details". I'm running my numbers right now and they're showing some strong stuff. I might put some more into it after all.

[amarone]

Originally Posted by Chessic Sense

I think (s)he made it on her own. Most of it is available from the Accounts page, and even more when you click "details". I'm running my numbers right now and they're showing some strong stuff. I might put some more into it after all.

Ah, ok. I know how to find the information but thought it would be great if that neat summary could be automatically emailed to me monthly or something.

[Mama Zappa]

Originally Posted by Onomatopoeia

Monthly Journal Note (6/1/2011)

Join date: 10/15/2010
Investment to date: $750
Payments to date: $208.70
Interest to date: $36.66
Notes currently held: 30
Current Net Annualized Return: 11.67%
Payments since last period: $39.89
Interest paid since last period: $7.19
Actualized return for month: 11.50%

Okay. Good. I'm convinced. I think it's time to invest a few more schkelim.

Does your "investment" figure include reinvesting proceeds in new loans or just what you actually sent to LC?

So far, my investment is 1375 but a significant portion of that is new loans funded with earlier loans' proceeds.
Deposits: $923.26
Principal Received: $386.48
Note Interest: $90.60
Service Charges: ( $5.60 )

I should be able to fund a new loan early next week. Right now I have 44 open loans; all but 5 of those are 25 dollar loans; the others are 50 dollars.

My return so far is 8.31%. I've been leaning new loans more toward A/B class vs the B/C class I was initially funding, and I did have one default that cost me 20 dollars (out of the 90 dollars interest). I'll be concentrating more on B/C for a bit since I have a fairly solid A-class base.

Total income (principal + interest) was just under 35.00 last month, so I'm not at the 2-new-loans-a-month stage. I'm a few months away from that at this point unless I through a bit more cash at the account.

At some point I'd like to consistently throw 50 per new loan but right now unless I've just added cash, I don't like to wait that long .

[Mama Zappa]

Originally Posted by Chessic Sense

I think (s)he made it on her own. Most of it is available from the Accounts page, and even more when you click "details". I'm running my numbers right now and they're showing some strong stuff. I might put some more into it after all.

I think most of those numbers are also on the statement PDFs which you can get from their website.

[drachillix]

As of now: (yes I am shopping for a loan right now)

Available Cash $27.36

In Funding Notes $0.00

Outstanding Principal $1,042.26

Accrued Interest $5.74

Deposits: $1,025.38

Investment:
(includes In Funding)( $1,550.00 )

Principal Received:$438.26

Note Interest: $121.18

Net Annualized Return 4.40%

Weighted Average Rate 10.79%

Got clobbered by a couple high risk loans defaulting when I first started, was down -2.4% at one point but it has swung back pretty hard the other way as time has passed. I too have been building a big base of A-B loans to reinforce things against any further crashes. Pretty much every time a payment posts i gan another hundredth or two of a percantage point.

[Onomatopoeia]

Originally Posted by Chessic Sense

I think (s)he made it on her own. Most of it is available from the Accounts page, and even more when you click "details". I'm running my numbers right now and they're showing some strong stuff. I might put some more into it after all.

This is correct. I created the report myself from data in various locations on the site. It would be great if it were all in one place but, oh well.

I'm very happy with my rate of return. This kills everything else I'm doing, investmentwise, by a wide margin. Where else can I get 11% on my money?

I just put in another $250 today. Instead of doing $250 a quarter, I think it'll be every month from now on.

[Onomatopoeia]

Originally Posted by Mama Zappa

Does your "investment" figure include reinvesting proceeds in new loans or just what you actually sent to LC?

Just what I actually sent to LC.

[Onomatopoeia]

Originally Posted by Mama Zappa

My return so far is 8.31%. I've been leaning new loans more toward A/B class vs the B/C class I was initially funding, and I did have one default that cost me 20 dollars (out of the 90 dollars interest). I'll be concentrating more on B/C for a bit since I have a fairly solid A-class base.

I'm going predominantly for Cs and Ds at this point. I'm still getting some Bs, but I'm not even looking at As anymore, especially since one of my As paid off really early.

[Chessic Sense]

Originally Posted by Mama Zappa

At some point I'd like to consistently throw 50 per new loan but right now unless I've just added cash, I don't like to wait that long .

Resist that urge! Lending Club most definitely keeps track of penny fractions (at least 1/100ths) so you're not getting screwed by investing $25, and diversifying should be the major goal right now. I've got over 500 loans and I still feel like I need to be more diversified. The more loans you invest in, the tighter that normal curve of possible ROI will be. The only time I invest $50 in a loan is when I feel so confident that I want to bet on the guy twice- that's different than just having a higher 'base' amount.

As for "waiting that long", I suggest you do. They've been raising interest rates on their grades since January as the economy (and thus, LC's competing investment options like T-bills and stocks) improves. If you invested a lot in April, like I did , you missed out on the .50% bump that came in May. I wouldn't nickel-and-dime yourself by waiting to reinvest $25, but I would hold off on dumping $1,000s into it right now. Wait til August, when stocks typically suck and I think LC will 'peak out' on their rising interest rates.

Disclaimer: I know what happened in the past, but I don't have a crystal ball. Ultimately, you're responsible for your own results.

[Mama Zappa]

Originally Posted by Chessic Sense

Resist that urge! Lending Club most definitely keeps track of penny fractions (at least 1/100ths) so you're not getting screwed by investing $25, and diversifying should be the major goal right now. I've got over 500 loans and I still feel like I need to be more diversified. The more loans you invest in, the tighter that normal curve of possible ROI will be. The only time I invest $50 in a loan is when I feel so confident that I want to bet on the guy twice- that's different than just having a higher 'base' amount.

As for "waiting that long", I suggest you do. They've been raising interest rates on their grades since January as the economy (and thus, LC's competing investment options like T-bills and stocks) improves. If you invested a lot in April, like I did , you missed out on the .50% bump that came in May. I wouldn't nickel-and-dime yourself by waiting to reinvest $25, but I would hold off on dumping $1,000s into it right now. Wait til August, when stocks typically suck and I think LC will 'peak out' on their rising interest rates.

Disclaimer: I know what happened in the past, but I don't have a crystal ball. Ultimately, you're responsible for your own results.

Well yeah - I'm not dumping thousands in, though I might move a small IRA CD there when it matures next year - that's "only" 2K though. I'll have to check on whether there are minimums / fees (I think there may be, and that would be below that minimum).

And by "waiting that long", I mean I'd have cash sitting in the account, uninvested, until it grows to enough to make an investment (25, 50 or whatever). Lending Club already gets a lot of float time on our investments at various stages, so I'm motivated to get money reinvested as soon as I can.

What I'm finding as I'm choosing loans: there are often only 1 or two that I "like" when I'm sorting through the available ones. At the moment my parameters are "A/B/C, income verified" at a minimum; I try to filter by "LC reviewed" but that often cuts down too much. And after that I go with my gut - things like wedding / vacation expenses get thrown right out, ditto things with vague / missing descriptions (I've sometimes funded A-class loans like that but won't touch those with B/C). So there'll someday be times where I'll have 50 bucks and not see much that I like, so might as well dump the whole 50.

Sorry you got bitten by investing a chunk a month too early. At least you should be getting enough paybacks from those that you are reinvesting the proceeds in the higher-rate loans.

When you did that chunk, did you basically choose a whole bunch of loans to fund over a day or two? or did you let it sit and grab a loan every few days as they appeared and looked good? Just curious as to how a larger investor (and compared with me, I suspect you qualify) does things.

Speaking of breakouts: Mine (by grade) is:
A: 17 loans (43%)
B: 16 loans (33%)
C: 10 loans (22%)
D: 1 loan (1%)

My one default was a C1. My early payoffs were B2, B3, B4 and C4.
With all that, my yield is, as noted, 8.31% I think I've done enough A-class loans for a bit; they're safer but the yield is only 5ish percent.

What breakdowns do you guys have that are leading to your return rates?

[amarone]

Originally Posted by Mama Zappa

And after that I go with my gut - things like wedding / vacation expenses get thrown right out

And yet data show these to be two of the most profitable loan types.

[Chessic Sense]

I usually just turn on my saved filter and then check to see which have the lowest payment:income ratio. My filter is for credit consols with no delinquencies, A+B+C grades. I don't do A grades anymore because the interest rates have gotten so small and the early payoff risk is so big that by the time you take out LC's fee, there's nothing left. If I wanted 5%, I'd buy the S&P500.

By the way, has anyone seen this site?

Originally Posted by amarone

And yet data show these to be two of the most profitable loan types.

True. I suspect it's because a lot of wedding loans are for small amounts. They're easy to pay back. Not to mention the fact that marriage tends to be good for the finances.

[Mama Zappa]

Originally Posted by amarone

And yet data show these to be two of the most profitable loan types.

Yeah, I suspect that this is a case where my moral judgment outweighs my financial judgment (I think spending a fortune on a huge wedding, if you don't have the cash, is wasteful.... ditto vacations).

Of course I'm leery of medical loans too - I checked once and those had a higher rate of default, and my one default was a medical loan. And those don't offend my Holier Than Thou moral sense, LOL.

Interestingly, the linked site mentions moving expenses as having lower rates of return and that meshes with my gut feeling as well; there was a loan recently where the person did not (as far as I could tell) have a new job lined up but was planning to move. I skipped past that one.

[Mama Zappa]

Originally Posted by Chessic Sense

...
By the way, has anyone seen this site?
...

Interesting. If you go to the stats tab, and lates by loan age - the figures are a tad scary for anything below grade A, toward the end of the loan life!

A 31-36 month old loan in grade A stands a 5.2% chsnce of defaulting, taking dates from 2005 to the present.

A 31-36 month loan in category B stands a 16.8% chance of defaulting. F and G go to 41% and 36%.

Now, this doesn't take into account loans that got paid off early - so wouldn't show up in those later stages. I wonder if anyone can find a way to determine how many loans pay off early?

[amarone]

Originally Posted by Mama Zappa

Interesting. If you go to the stats tab, and lates by loan age - the figures are a tad scary for anything below grade A, toward the end of the loan life!

A 31-36 month old loan in grade A stands a 5.2% chsnce of defaulting, taking dates from 2005 to the present.

I am not sure exactly what you are saying, but the data says that 5.2% of grade A loans will default by the end of 36 months, not that 5.2% will default between 31 and 36 months.

Meanwhile, one of my loans is in trouble on the first payment! I hope they have just screwed up setting up the payment mechanism.

[Mama Zappa]

Originally Posted by amarone

I am not sure exactly what you are saying, but the data says that 5.2% of grade A loans will default by the end of 36 months, not that 5.2% will default between 31 and 36 months.

Meanwhile, one of my loans is in trouble on the first payment! I hope they have just screwed up setting up the payment mechanism.

I may be misreading it - but I was assuming those were for loans that happened to be in that particular life stage - so yeah, that would include defaults that occurred any time during the 36 month, but the denominator was the loans that were > 30 months in age at that time. So basically I agree with you .

I did download their "statistics" CSV file a couple hours back. I seem to recall that I tried to bring that into Excel once but it was too large; I may try to read it into the desktop Oracle database and crunch some numbers. That would let me see records that were paid off early, I think.

Ouch on the "first payment" loan. I had one go that way but was brought current within the 15 day grace period.

Next month, I again saw "in grace period"... then it paid in full! I have NO idea what was going on. I did make a few cents profit on that one - the interest for the 2 months was about 15 cents more than the fees.

[Mama Zappa]

Originally Posted by me

...
I did download their "statistics" CSV file a couple hours back. I seem to recall that I tried to bring that into Excel once but it was too large; I may try to read it into the desktop Oracle database and crunch some numbers. That would let me see records that were paid off early, I think....

Phooey - took a look at the download file and there doesn't seem to be a "last payment date". I could *guess* that something was prepaid if the "total paid" was less than the product of the term and the monthly payment; maybe set a 1-2% error cutoff to allow for small prepayments / rounding errors.

[Mama Zappa]

Just noticed on the American Banking News site that they've recently added North Carolina and Kansas to their list of states.

[Onomatopoeia]

I just set up an automatic monthly funds transfer of $250 for the next 12 months, scheduled for the first of each month. This will allow me to build my investment over time in small, painless increments.

Transferring $3000 in one shot would make me a bit uneasy. Being able to spread the $3000 out over the course of a year, while maintaining the option to cancel or modify the schedule and amount as desired, gives me better control and flexibility.

[Onomatopoeia]

Originally Posted by Chessic Sense

I've got over 500 loans and I still feel like I need to be more diversified. The more loans you invest in, the tighter that normal curve of possible ROI will be.

Question. Are you pulling anything out of your LC account, or reinvesting everything? With 500 loans, I imagine your weekly payments to be pretty substantial.

[amarone]

Originally Posted by Mama Zappa

Ouch on the "first payment" loan. I had one go that way but was brought current within the 15 day grace period.

It's still in the grace period, so I am not too worried yet. If it does fail it would be ironic in that the borrower's credit rating has improved since taking out the loan!

[drachillix]

Originally Posted by Onomatopoeia

Question. Are you pulling anything out of your LC account, or reinvesting everything? With 500 loans, I imagine your weekly payments to be pretty substantial.

I wouldnt be, s/he probably is only pulling in may $100/mo in interest.

[Onomatopoeia]

Originally Posted by drachillix

I wouldnt be, s/he probably is only pulling in may $100/mo in interest.

At a minimum. $100 interest would be if all of his loans are $25, which I don't believe they are.

[drachillix]

Originally Posted by Onomatopoeia

At a minimum. $100 interest would be if all of his loans are $25, which I don't believe they are.

He mentioned having like $12K invested....assuming 10% about $100/mo.

[Onomatopoeia]

Originally Posted by drachillix

He mentioned having like $12K invested....assuming 10% about $100/mo.

Which is a phenomenal return. I just checked one of my savings accounts that had $80.23 interest credited on June 1. I'm almost embarrassed to note how much I have on deposit there. So if Chessic is getting $100/mo. return on $12K, and considering the return I'm getting on my currently paltry LC investment, which I'm quite pleased with, I don't see much advantage of keeping any where near as much as I do in a savings account.

The reason I asked if Chessic was taking any money out is because I wondered if he'd gotten to the point where he could siphon some cash off to augment his monthly income. It'd be an interesting exercise to calculate how much of an investment in LC someone would need to generate enough of income to live on.

[Mama Zappa]

http://www.wiseclerk.com/lending-clu...etts-t262.html

Interesting....

[Mama Zappa]

Originally Posted by drachillix

He mentioned having like $12K invested....assuming 10% about $100/mo.

Or even a rough WAG based on the sort of interest I'm seeing: on a fairly new A-class loan I see 11 cents (on a 25 dollar investment), on a newer C-class loan I got 24 cents, so assume an average new-loan interest of 18 cents.... and assume half that as an average over the life of the loan, or 9 cents per month per loan (my assumption is that that C-class is paying 24 cents now but 1 cent in its last month).

So 500 loans times 9 cents is only 45 dollars a month.

Anyway - safe bet it's less than 100 a month and more than 5.00 a month .

[Chessic Sense]

Originally Posted by Mama Zappa

Interesting. If you go to the stats tab, and lates by loan age - the figures are a tad scary for anything below grade A, toward the end of the loan life!

A 31-36 month old loan in grade A stands a 5.2% chsnce of defaulting, taking dates from 2005 to the present.

A 31-36 month loan in category B stands a 16.8% chance of defaulting. F and G go to 41% and 36%.

Now, this doesn't take into account loans that got paid off early - so wouldn't show up in those later stages. I wonder if anyone can find a way to determine how many loans pay off early?

It does seem scary at first glance, but you're forgetting a few things. One, if you're at 10% interest and you're 24 months in, then any dollars still remaining in principle has already generated and paid 20 cents. So you shouldn't say "I'm loaning at 10% and losing at 16%, so I'm down 6%!" You've got to figure in multiple years.

Two, if a loan defaults in the 30th month, they've already paid back a substantial part of your original investment. I ran the math on my late loans and found that most loans defaulted after paying back 20% in interest and principle. That is, I recovered 20 cents on the dollar, whether you want to count that as interest or principle doesn't matter. I had one outlier that paid back 45% of the loan, which changes the average to roughly 75%. Three,

Originally Posted by Onomatopoeia

Question. Are you pulling anything out of your LC account, or reinvesting everything? With 500 loans, I imagine your weekly payments to be pretty substantial.

I'm making about $95 a month. I only took out $800 when I lost my job in December, but I'll be putting that back in soon. It's been 11 months since I dumped a whole lot into LC, so I'm about to do a "one year later" review for you guys.

[Chessic Sense]

OK, ladies and gentlemen: I just completed a thorough review of all the stats and properties of completed notes. I found out what really affects the default rate and what doesn't matter much at all. These are my findings.

I decided to just use debt consols and credit refinances, since those are the bulk of LC's notes and controlling for loan purpose seemed important. I still have the data for the other loans if you have a specific request for information. For return rates, I simply divided payments received by loan amount to see what the three-year return would be on the dollar. So if someone borrowed $7,000 and paid back $7,700, their rate would be 1.10, or +10%

Overall return: +6%. If you invested in every debt and credit loan between inception and May 2008, you'd have 6 cents for every dollar you put in. Keep in mind that that's without reinvestment.

Loan amount: The higher the loan amount, the more defaults you'll see, but it's not linear. The magic number is $19,000. Return rates are pretty stable up until that point, where they drop off.

Interest rate: Don't try to get more than 12%. Those loans, for various reasons, end up having terrible return rates. The best rates are 9-11%. Keep in mind, though, that rates are highly affected by other factors, so it's probably a confounded variable.

Loan payment amount: This is a product of interest rate and loan amount, but it appears to have little affect. Default rates are similar for all payment brackets.

State: Obviously, the small states have tiny n's. But of the high-population states where I can comfortably say we have a sufficient sample size, FL and NJ are terrible. Illinois, however, likes paying their loans back. KY, SD, and Al are also quite generous while WA defaults all the time.

Earliest Credit Line: Surprise!! It's not a factor. So long as the first credit line was pre-2005, you're fine. It doesn't matter if their first credit line was from Pontius Pilate or during Bush's first term.

# open lines: Another surprise! It's the most irrelevant factor of them all. Seriously, the trend line is flat as a board.

Total credit lines: Inconclusive. It's all over the place and the trend line is positive or negative depending on where you chop off the small-sample groups.

Credit Balance: Also inconclusive.

Credit Score: Absolutely the most important factor. The 780+ group has a return of 1.11 while the 660s have only 1.063. Most factors I looked at resulted in jagged graphs, but this one is an obvious curve and there's a stark difference between the two ends.

Debt:Request ratio: This is a derived category. I call it the "Truth ratio". I've had the hunch all along that if a person owes $12,000 and they're asking for $12,500 that they're legit, but if they only want $2,000 or are asking for the whole $35,000 enchilada, then I smell a rat. Verdict: Meh. The theory doesn't really hold water. So long as the borrower isn't asking for >3 times what his stated debt is, it's probably fine. Even if they are, it's still not a good correlation.

Debt to income: This one, however, does have a good correlation. You should look for loans with less than 12% DtI. There's a sharp dropoff in return rate after that.

Length of employment: Irrelevant. For some reason, the worst borrowers have 3-4 years in their current position, yet 2s and 5s are golden. 7 and 10 is bad while 8 and 9 is good. I think we can toss this variable in the garbage.

Public records on file: Borrowers with 0 records are by far the most common, and they have a 6% return overall. People with 1, 2, or more records all have returns around 3%.

Months since delinquency: Not a clear trend. There's slightly more risk if there's a recent delinquency, but not much. For some reason, there's a SHARP decline in returns at 45-50 months (aka 4 years) but that could just be sample bias. Who knows? Obviously, though, people with no delinquencies have the best returns.

Inqueries in last 6 months: People that have no inquiries have a 1.08 return. Everyone else has 4%. Sounds like a good indicator to me.

Income: Ahhhh, finally! A factor that's not immediately obvious but also correlates well! The higher, the better. Borrowers making over 8k a month have returns well over 10% while those under are only 5%. It's not surprising, but at least now it's demonstrated.

Payment/income: Another derived category; my other hunch. I hypothesized that it wasn't really the income or payment that mattered, but the two together. How much of the family budget goes into the loan is the real key here. I strongly suggest that you not loan to anyone that'll have to pay back more than 13% of their monthly income. Any more than that and the default rates start to climb. Stay under 10% if you can still get a high interest rate.

Home ownership: Irrelevant. Mortgage-holders do sliiiiightly worse than renters, and owners are right in the middle.

Summary: Payment/income and credit score are the things that matter most. Loan grade, loan amount, and interest rate matter slightly. Housing status, revolving credit balance, credit lines are irrelevant.

So if you like buying debt/credit notes, then go with A5-C1 grades with credit scores 714+ and high incomes and/or low payments. Never fund loans over $20k. You'll make 7.8 cents on the dollar.



Questions?

[amarone]

Originally Posted by Chessic Sense

I simply divided payments received by loan amount to see what the three-year return would be on the dollar. So if someone borrowed $7,000 and paid back $7,700, their rate would be 1.10, or +10%

Overall return: +6%. If you invested in every debt and credit loan between inception and May 2008, you'd have 6 cents for every dollar you put in.

Thanks for all the work and sharing your results. One question on the quoted part - are you therefore saying that the annual return is about 2%? (Ignoring the effect of loans paying off early which can be reinvested sooner).

[Giltathriel]

Originally Posted by Chessic Sense

<snip>
So they don't let under-$70k people invest because it's a regulation, and they don't let Pennsylvanians, et al., invest because they're not in compliance with PA law.

Does anyone know what happens if you get caught lying about your income?

[Onomatopoeia]

Originally Posted by Giltathriel

Does anyone know what happens if you get caught lying about your income?

It's off to the hoosegow with ya!

Seriously, I don't know, and don't intend to find out, which is why I use the trading platform.

[amarone]

Originally Posted by Giltathriel

Does anyone know what happens if you get caught lying about your income?

No, but they do say that if you have invested then realize that you do not meet the eligibility requirements, then you should call them to close your account. So if you are caught lying, I would think that at minimum they will close your account (I wonder what happens to the loans?)

As the eligibility rules are for your own protection, I suspect they will not take further action, but that is conjecture on my part.

[Chessic Sense]

Originally Posted by amarone

Thanks for all the work and sharing your results. One question on the quoted part - are you therefore saying that the annual return is about 2%? (Ignoring the effect of loans paying off early which can be reinvested sooner).

Yes. But that "ignoring the effect..." part is huge. Keep in mind that as they pay the loan back, the invested principle drops. So in the second and third year, you're still earning, like, 10% but only on a fraction of the original principle. A 10% $100 loan for 36 months will have a payment of $3.23 every month. So by the end of the loan, you'll have collected $116.28, for a profit of 16.28%. 12% interest gets you 19.5% profit.

That's got nothing to do with Lending Club and everything to do with math. There's no getting around that, no matter if you're talking investing or corn harvesting.

[Giltathriel]

Onomatopoeia, does the lending platform not have the income requirement?

I'm in PA, so I can't use Lending Club proper anyway, but it sounds like you had to have an account with Lending Club to get started with the trading platform?

[amarone]

Originally Posted by Chessic Sense

Yes. But that "ignoring the effect..." part is huge. Keep in mind that as they pay the loan back, the invested principle drops. So in the second and third year, you're still earning, like, 10% but only on a fraction of the original principle. A 10% $100 loan for 36 months will have a payment of $3.23 every month. So by the end of the loan, you'll have collected $116.28, for a profit of 16.28%. 12% interest gets you 19.5% profit.

That's got nothing to do with Lending Club and everything to do with math. There's no getting around that, no matter if you're talking investing or corn harvesting.

Got it - thanks. I am evaluating LC as an alternative to some of my fixed income investments and keep forgetting that I get principal back from LC, unlike any of the others.

[Onomatopoeia]

Originally Posted by Giltathriel

Onomatopoeia, does the lending platform not have the income requirement?

I'm in PA, so I can't use Lending Club proper anyway, but it sounds like you had to have an account with Lending Club to get started with the trading platform?

I believe the eligibility requirements are the same, although I don't recall being asked to state my income, but perhaps I did.

I'm in NJ, another state that doesn't allow its residents to buy notes through Lending Club. I didn't like the trading platform at first, but it's grown on me, and offers benefits the main Lending Club doesn't. Their search function sucks though.

[Giltathriel]

Okay, the trading platform did ask for an income, but they had an appropriate box for mine

[Mama Zappa]

Originally Posted by Chessic Sense

Yes. But that "ignoring the effect..." part is huge. Keep in mind that as they pay the loan back, the invested principle drops. So in the second and third year, you're still earning, like, 10% but only on a fraction of the original principle. A 10% $100 loan for 36 months will have a payment of $3.23 every month. So by the end of the loan, you'll have collected $116.28, for a profit of 16.28%. 12% interest gets you 19.5% profit. ...

Yes - and note that that is a profit over *3 years*, so your annualized profit is roughly 5.1% (or 6.5%).

The only way to have your average annualized profit match (roughly) your loans' interest rates would be to reinvest everything as soon as you get any payback (ensuring that there's no money laying fallow and not earning anything). Or to withdraw it immediately, also ensuring you don't have money laying fallow in the LC account.

Speaking of early payback - My take on that is that in general, there's no downside to me as an investor (aside from the situation that Onomatopoea mentioned, where his fees outweighed his profit); while yeah, I'm losing a guaranteed (ish) income stream from that loan, at least I know there will be no default - and I can reinvest it. Of course, investment terms might not be as good, or they might be better, so there's a possible issue there. Not a significant one, but worth noting.

[Chessic Sense]

Originally Posted by Mama Zappa

Speaking of early payback - My take on that is that in general, there's no downside to me as an investor (aside from the situation that Onomatopoea mentioned, where his fees outweighed his profit); while yeah, I'm losing a guaranteed (ish) income stream from that loan, at least I know there will be no default - and I can reinvest it. Of course, investment terms might not be as good, or they might be better, so there's a possible issue there. Not a significant one, but worth noting.

Consider a set of loans where 3% default. That sounds pretty good if you're getting 12% on the other loans. Now consider a set of loans where still 3% default but 90% pay off so early that you're getting less than you'd bother picking up off the sidewalk. Suddenly, you're only profiting on 7% of the loans and losing the whole kit on the other 3%.

In the former, you make money. In the latter, you lose it. That's certainly a downside. That's why, in my calculations, I didn't bother to look at defaults/earlies/full terms. I simplified it down to whatever money the note paid back in. If it pays 105% and then defaults, it's no different than paying 5% interest and then paying off early.

So in other words, paying off early is bad, but I already accounted for that, so it doesn't change my assessment.

[Mama Zappa]

Originally Posted by Chessic Sense

...

I'm making about $95 a month. ...

How have you been handling this for income tax purposes?

As I said somewhere earlier in the thread, I've been just taking my net income (interest received, minus fees / chargeoffs) but I know that's not how these are *officially* supposed to be accounted. There's some godawful future-value calculation that's supposed to be done, I think.

[rpinrd]

Ok. I've taken the plunge. After seeing that my kids CDs were making 0.45% I figured I could at least give this a try. (You all are responsible if my kids can't go to college now )

I'm in Texas, so I'm on the trading platform. I know that one of you really likes the platform, so that gave me some confidence. One thing I don't understand is why on Earth I would ever buy a note that is being sold at a markup? I understand that on some of the markups, I could still make money over the life of the loan, but some are marked up so much that I would be, by definition, losing money. Are the people selling these just not understanding what they are selling, are they trying to scam potential buyers? Who would buy such a thing?

Also, what is the motive for selling a good loan at a discount? I see loans that are current and where the credit score is either neutral or even improving, and the note is being sold at a discount. Do you suppose the seller is just trying to get out of LC?

[Onomatopoeia]

Originally Posted by rpinrd

Ok. I've taken the plunge. After seeing that my kids CDs were making 0.45% I figured I could at least give this a try. (You all are responsible if my kids can't go to college now )

I'm in Texas, so I'm on the trading platform. I know that one of you really likes the platform, so that gave me some confidence. One thing I don't understand is why on Earth I would ever buy a note that is being sold at a markup? I understand that on some of the markups, I could still make money over the life of the loan, but some are marked up so much that I would be, by definition, losing money. Are the people selling these just not understanding what they are selling, are they trying to scam potential buyers? Who would buy such a thing?

I know some people buy notes and sell them at a markup as a matter of course. To them, it's like gambling. They're not in it for the investment. Rather, it's a potential quick hit for them. They buy a discounted note and sell it right away for a higher price than they paid, and hope someone will buy it, either without paying attention to the markup, or somehow considering it to be a good deal anyway even with the markup.

When I first joined, I bought a few notes at a markup because I didn't know what the heck I was doing. Thank goodness they weren't high markups. I've since sold one of them.

Originally Posted by rpinrd

Also, what is the motive for selling a good loan at a discount? I see loans that are current and where the credit score is either neutral or even improving, and the note is being sold at a discount. Do you suppose the seller is just trying to get out of LC?

Yep. I think they just want to cash out.

Some people are also very nervous, selling a note as soon as the borrower's credit score dips.

[Chessic Sense]

Originally Posted by Mama Zappa

How have you been handling this for income tax purposes?

As I said somewhere earlier in the thread, I've been just taking my net income (interest received, minus fees / chargeoffs) but I know that's not how these are *officially* supposed to be accounted. There's some godawful future-value calculation that's supposed to be done, I think.

You didn't get a 1099-INT? They sent my info the IRS and I got audited for not claiming the $30 or whatever that I made in 2009.

Originally Posted by rpinrd

Ok. I've taken the plunge. After seeing that my kids CDs were making 0.45% I figured I could at least give this a try. (You all are responsible if my kids can't go to college now )

I'm in Texas, so I'm on the trading platform. I know that one of you really likes the platform, so that gave me some confidence. One thing I don't understand is why on Earth I would ever buy a note that is being sold at a markup? I understand that on some of the markups, I could still make money over the life of the loan, but some are marked up so much that I would be, by definition, losing money. Are the people selling these just not understanding what they are selling, are they trying to scam potential buyers? Who would buy such a thing?

Also, what is the motive for selling a good loan at a discount? I see loans that are current and where the credit score is either neutral or even improving, and the note is being sold at a discount. Do you suppose the seller is just trying to get out of LC?

That's kinda like walking around the neighborhood in early December and saying "What's up with all these 'Vote for McSlimeball' signs in people's yards? Why would they put that up when the election's already over?" The answer is the same- they've been there a while. The marked-up loans probably were a good value when they were first put up, but then no one bought it. And payments were made over time, so now there's less principle outstanding.

And the discounts are there for people that are cashing out. They're motivated sellers, so to speak. If I buy a house next year, this is what I plan to do.

[rpinrd]

Thanks to you both. Those answers confirm my suspicions. Next question - Why is LC taking so long to process my damn Trading Platform application?!?! I submitted it on the 16th, received a notification saying that they would take one business day to make a decision. Today is the 20th, with no word. Stupid weekend.

[Mama Zappa]

Originally Posted by Chessic Sense

You didn't get a 1099-INT? They sent my info the IRS and I got audited for not claiming the $30 or whatever that I made in 2009.

Nope - did you get some kind of document for 2010?

They specifically say they won't unless your income (from a single loan!) is above a certain level:
http://www.lendingclub.com/kb/index....ry&EntryID=240
http://www.lendingclub.com/kb/index....ry&EntryID=238

All my notes are 2009 and later, so I'd fall under the 1099-OID heading.

Per their own info (above) they won't send anything most people - I figure that if a single loan for 25.00 usually earns, say, 25 cents a month, that's only 3 bucks a year. So I'd have to invest 100-150 to ever trip that 10.00 limit.

Did you get anything for the 2009 year? If not, it's a bit scary to think they're reporting to the IRS but not to us!