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-   -   Lending Club Experiences (https://boards.straightdope.com/sdmb/showthread.php?t=537202)

drachillix 10-24-2009 02:00 PM

Lending Club Experiences
 
I stumbled across a place called www.lendingclub.com I was just curious if anyone had any experiences they would be willing to share WRT investing with them.

I thought it looked kinda neat and figured it would be a neat little retirement vehicle and opened an account with $25, added my money to a couple financing an adoption and figured I will start tossing in $25 every paycheck towards other loans if I like what I see and hear.

Thank you

Drach

Mama Zappa 10-26-2009 12:46 PM

Quote:

Originally Posted by drachillix (Post 11699879)
I stumbled across a place called www.lendingclub.com I was just curious if anyone had any experiences they would be willing to share WRT investing with them.

I thought it looked kinda neat and figured it would be a neat little retirement vehicle and opened an account with $25, added my money to a couple financing an adoption and figured I will start tossing in $25 every paycheck towards other loans if I like what I see and hear.

Thank you

Drach

I'll be interested to hear what people say. Washington Post had an article a month or so ago about this:
http://www.washingtonpost.com/wp-dyn...1900124_2.html

and I was reminded of it when I saw the Kiva thread. Can you actually put in as little as 25 dollars?

Hockey Monkey 10-26-2009 08:19 PM

I'm very interested in trying it, but I'm in a state where it's not available. :(

Mama Zappa 10-28-2009 08:49 PM

Quote:

Originally Posted by Hockey Monkey (Post 11706897)
I'm very interested in trying it, but I'm in a state where it's not available. :(

I think you can buy notes on the secondary market (look around their website). That would appear to be the way a current loan-holder could liquidate his investment and get some / most of his/her remaining principle.

Just for yucks, I signed up today. Sent my spare 25 bucks via Paypal and added it to someone's bill consolidation loan. I figure I'll throw in 25 bucks every month or so as I have it in my small-change bank account.

In three years, I'll have about 32.50, woohoo - which won't make me rich but is better than a regular savings account.

I picked the lend-ee based on a combination of fairly decent credit score (low 700s), relatively low amount (3,000), mostly funded already (what happens if you pledge money toward a loan and they don't get funding for the whole thing?), and moderate interest rate (11ish percent).

Now here's hoping I don't screw up the accounting in Quicken. Drachiilix. how do they report the income and repayment? And how to you track it on your side (if at all)? I'm guessing we'd want fairly careful bookkeeping in case a loan goes bad and it gets written off as a worthless debt, like stock that gets cancelled can be written off as a loss?

Hockey Monkey 10-28-2009 10:55 PM

I signed up to buy notes on the used market. I think this will be even more fun.

drachillix 10-29-2009 07:08 PM

Quote:

Originally Posted by Mama Zappa (Post 11705077)
and I was reminded of it when I saw the Kiva thread. Can you actually put in as little as 25 dollars?

Yup, thats all I have in, get paid tomorrow, should be tossing in another $25.

If the loan does not fully fund they kick the money back to your account to try again. My first attempt has not fully funded yet. I figure once a 5-6 months have passed it will fairly quickly get to a point where there is $25 in payments coming in that can be immediately invested in a new loan.

Mama Zappa 11-27-2009 10:40 AM

I signed up and have now funded 125.00 in loans (the last 50 just funded today). In a month, I've accrued a whopping 48 cents, woohoo ;) which is certainly better than the same 75 dollars would have done in a savings account.

Haven't received any payments yet - the first payment comes some time early next week. So that 48 cents is just "on paper" right now.

It's amusing watching those pennies rack up. As I have additional bits to invest in the future, they'll rack up faster hopefully. Obviously someone could default and then I'd be out my cash; the nice thing is that on any one loan I'd never be at risk for much money. Anyway, it's entertaining.

It can be annoying though, at least 3 times now I've pledged money toward a loan and had the loan disappear after all the money is available - guess the people decided not to borrow after all. At least the money gets returned and is available to put toward another loan.

drachillix 11-27-2009 07:05 PM

Quote:

Originally Posted by Mama Zappa (Post 11823519)
It can be annoying though, at least 3 times now I've pledged money toward a loan and had the loan disappear after all the money is available - guess the people decided not to borrow after all. At least the money gets returned and is available to put toward another loan.

Most of those are not fully approved when you pledged your money. If they fail income verification or LC fails to approve them, the loan gets punted and money comes back. If you set the filters for approved and income verified there are often only a handful available because they close out almost instantly when they do from people looking to invest who know its pretty much guarenteed to finish out and be issued.

I really like it in a "playing the stock market" kinda way, you are just playing with loans. My first payments are due in a few days, I'm pretty stoked.

FYI anyone else who is interested Mama Zappa or myself can send you an invite thet will get you $25 credit to start, (wish they gave US something for a signup)

drachillix 11-27-2009 07:15 PM

Quote:

Originally Posted by Mama Zappa (Post 11823519)
It's amusing watching those pennies rack up. As I have additional bits to invest in the future, they'll rack up faster hopefully. Obviously someone could default and then I'd be out my cash; the nice thing is that on any one loan I'd never be at risk for much money. Anyway, it's entertaining.

Nice thing is, most of these folks have scary good credit, defaulting on the loan would bludgeon their credit mercilessly. So its a pretty good bet. Even the worst candidates they approve statistically only have something like a 5.5% default rate.


dunno if this requires a login

https://www.lendingclub.com/info/how...t-rates.action

Mama Zappa 11-29-2009 08:49 PM

Quote:

Originally Posted by drachillix (Post 11824720)
Nice thing is, most of these folks have scary good credit, defaulting on the loan would bludgeon their credit mercilessly. So its a pretty good bet. Even the worst candidates they approve statistically only have something like a 5.5% default rate.

In real life, it is actually higher than that:
https://www.lendingclub.com/info/sta...ormance.action
https://www.lendingclub.com/info/dem...profile.action

This shows that as you get to the higher rate, higher risk, higher rate loans, the estimated payback drops precipitously. Of 169 category G loans, 45 are late or in default. The average return for category F is actually substantially worse than category E, despite a higher loan interest rate.

So, it's definitely NOT risk-free.

I've been sticking to category C and D for the handful of loans I've funded.

Somewhere in the info about the rate-setting process, they list an "assumed default rate" which is indeed no more than 5ish percent. Not sure where that figure comes from but it doesn't mesh with their real-world results.

Markxxx 11-30-2009 03:45 AM

Credit only reflects what you've done in the past, not what will happen in the future.

The thing that bugs me about this are the rates. OK I have very good credit and I'm getting credit card adverts for 1.9% interest rates. I still get offers for loans of up to $20,000 at no interest for a year, from my credit cards.

My bank will give me a small business loan for 3%.

So much cheaper credit IS available to people with good credit. So why go here, if you're credit is all that great. Seems like a bank would still give you better rates. At least my banks would do so.

I'm sure there's something I'm not getting but till then

wonky 11-30-2009 12:02 PM

Very interesting. Looks like I can't do it in Ohio, though I'm poking around at the Note Trading Platform.

Mama Zappa 12-01-2009 08:41 PM

Quote:

Originally Posted by Markxxx (Post 11831381)
Credit only reflects what you've done in the past, not what will happen in the future.

The thing that bugs me about this are the rates. OK I have very good credit and I'm getting credit card adverts for 1.9% interest rates. I still get offers for loans of up to $20,000 at no interest for a year, from my credit cards.

My bank will give me a small business loan for 3%.

So much cheaper credit IS available to people with good credit. So why go here, if you're credit is all that great. Seems like a bank would still give you better rates. At least my banks would do so.

I'm sure there's something I'm not getting but till then

I looked at the rates from my credit union for unsecured loans - and after making allowances for different loan periods etc., Lending Club's top of the line rates for those with stellar scores are not out of line with the credit union.

It's interesting to read how they set the rates though. You're initially slotted for a grade (A1 through G6 or some such) depending on your credit score... then they move you down a notch or four depending on things like loan amount, number of existing accounts, length of credit history, etc. It'd be nearly impossible to get their absolute best loan rate.

The credit card rates you mention are for limited periods of time, and you make one payment one day late and they go waaaay up, I suspect, so those aren't necessarily the best.

I don't know what banks' signature loan rates usually are for folks with less-perfect credit (700 for example may be good for most stuff but it's not top-notch).

Anyway - I agree that many folks *could* do better elsewhere. But for some, it's probably competitive and certainly an improvement on the credit cards' usurious rates. The majority of loans seem to be slated for that, anyhow.

For me, it's a chance to make a *small* amount of money, and have a little fun watching the numbers inch up. I don't see this being a major investment but it's got some entertainment value.

Mama Zappa 12-04-2009 10:43 AM

Quote:

Originally Posted by drachillix (Post 11824695)
Most of those are not fully approved when you pledged your money. If they...My first payments are due in a few days, I'm pretty stoked....

Have your first payment(s) been credited to your account yet?

My first one - 84 cents, woohoo! - was due on Monday (11/30). For a day, it showed all my accrued interest (all 27 cents) as having disappeared, but no payments on my principal. Then the accrued interest came back, but still no payments on the principal. When I look at the specific loan, it shows as "current", but the payment is "processing".

Dunno what that means - whether it's normal for them to take this long, or whether the very first payment on the very first loan I funded has defaulted already. If so, oh well, that's the beauty of funding such small amounts (25 bucks). It won't hurt too much to lose it.

My next 2 loans have payments due on the 13th and 14th, we'll see how they work out.

All in all, it'll turn out to be worthwhile from an entertainment standpoint at the least.

drachillix 12-04-2009 05:27 PM

Quote:

Originally Posted by Mama Zappa (Post 11849454)
My next 2 loans have payments due on the 13th and 14th, we'll see how they work out.

All in all, it'll turn out to be worthwhile from an entertainment standpoint at the least.

My first payments have not posted, due dates are today and tomorrow for the first couple. Time will tell.

Chessic Sense 12-04-2009 08:20 PM

I've been at this for a year and about 9 months. I started with 2,000 and now I have 2150 ish. That's because someone defaulted and I lost about $210. Of course, over that same time period, my stocks lost 30% of their value. So being in the black at all is still better than the Dow. If I were you guys, I would stick to the A-B class. They still have a great rate but they're WAY less risky. At C level, the default rate increases a lot.

A word of caution for the penny pinchers: If you can afford to offer more than the $25, do so. If you only fund $25, they take a whole penny from each payment for the processing fee. That's more than the 1% they said they'd take. It's not much, but I don't need to tell you how pennies add up in things like this.

My personal strategy is to only lend to the "refinance credit card" people with great credit scores. They're definitely using my money to make money, in a penny-saved-penny-earned kinda way. The high credit score is evidence that they'll have the money to pay me back every month. If you loan someone money for, say, a wedding ring, then that doesn't produce any cash for them. So there's less proof that they'll be able to pay. That's my theory anyway.

Overall, I love this site. I wish it were faster, like the stock market, but it makes me feel good that I've got a solid investment and I'm simultaneously sticking it to the CC companies.

ETA: Don't worry if your payments are a few days late. For some reason, they take about a week to post to your account. Your loans didn't default. They'll backdate the payment to when they got it. So, no worries.

drachillix 12-12-2009 03:14 AM

Quote:

Originally Posted by Chessic Sense (Post 11851835)
ETA: Don't worry if your payments are a few days late. For some reason, they take about a week to post to your account. Your loans didn't default. They'll backdate the payment to when they got it. So, no worries.

One of mine just posted :D

I always figured I would keep doing $25 until my incoming payments/month was $25 then just add my new $25 to the $25 in payments and start doing $50.

Mama Zappa 12-12-2009 09:23 AM

Chessic Sense, what you've said seems to mesh with the reading I've done - cc refis tend to perform a bit better overall. And my own personal inclination is to NOT fund something one-time like a wedding; I think squandering money you don't have on a big wedding is poor financial planning. You make a good point that the borrower wouldn't view that as a money-making opportunity!

I did indeed get that one payment about 4 days after the "due date". It turns out they really screw with the reporting during the payment period - first the interest disappears, then reappears, then the payment is shown as credited but your cash balance doesn't reflect it.... they need to tweak their systems a bit.

Agreed on the penny fee on the smaller amounts - they roll it up to the whole penny. A 50 investment would have the same problem (the one I've done has a payment of 1.70 so it would roll up to 2 cents). So one might have to go to 75 or 100 bucks investment to get it to be more proportional.

I've so far invested 150 dollars in 5 loans. Of course, it's the one 50-dollar loan which is showing a credit score drop (sigh). Kitchen remodel and debt payoff.

I've got two more that should be coming in some time this week. One adoption, one refi.

drachillix 01-04-2010 01:58 AM

I just dropped $50 into #12 with a lil of the xmas money from garndma (she would be so proud). Loving this so far. Just seeing a payment post makes me want to plunk in more money so I can reinvest that $1.70 sitting there mocking me, drawing no interest :D

Mama Zappa 01-04-2010 08:57 AM

Quote:

Originally Posted by drachillix (Post 11952112)
I just dropped $50 into #12 with a lil of the xmas money from garndma (she would be so proud). Loving this so far. Just seeing a payment post makes me want to plunk in more money so I can reinvest that $1.70 sitting there mocking me, drawing no interest :D

LOL - yeah, I feel the same. My most recent investment was by topping off the cash balance 24 bucks and change.

Some musings:

I agree that cc refi seems to be a a decent target audience for loans for the reasons you noted above.

Lending Club probably makes a fair bit from the various "floats" - the time between when you commit your 25+ dollars and the time the loan actually issues and starts earning interest for the lenders. And also between the time they actually receive the repayments and the time they credit them back to your cash balance. Plus as you've noted, for the time the cash balance is sitting there, waiting to be withdrawn / reinvested. Not much we can do about any of these except the last (I suppose we could withdraw that buck or two to a bank account and re-deposit it as soon as we're ready to fund a loan).

Lending Club themselves will never lose money on a loan. Obviously the loan is not "their" money to begin with, but also since they collect a fee off the top of the loan, their profit is guaranteed regardless. Unless of course things default and they have to take collections actions out of their dime, but even then I suspect their costs are less than the fees.

While googling around, I remember seeing some blogger talking about a loan (for wedding expenses) that defaulted on the first payment (i.e. the borrower never repaid a dime). And that rereading the listing, it sent up so many red flags the blogger wondered why he'd ever invested in it. Someone commented "You'd think Lending Club would have gone after that harder, after all it's 25,000 bucks!". The commenter clearly had no idea what s/he was talking about, thinking LC was out 25K.

All that said, it *is* mildly addictive :). I've gotten repayments from 3 loans so far; two more repayments (including the second one from one of the 3) are processing right now. I'm sticking with B and C class loans for the most part though somewhere down the line I'm sure I'll toss 25 bucks at an F or G class loan just for fun.

drachillix 01-09-2010 05:30 PM

I am taking on a little risk here and there but my strategy is as follows.

2 better class loans for each loan of a lower tier.

So
8 class A loans
4 class B Loans
2 class C ....
1 class D ...

Figure that way my main block of loans are pretty damn safe bets.

I have 13 loans now and look forward to looking every day.

drachillix 01-22-2010 09:26 AM

Quote:

Originally Posted by drachillix (Post 11975105)
I have 13 loans now and look forward to looking every day.


16 now...somebody stop me! :D

If I keep up like this I may get enough defaults to qualify for a federal bailout :D

Mama Zappa 01-22-2010 10:13 AM

Quote:

Originally Posted by drachillix (Post 12024954)
16 now...somebody stop me! :D

If I keep up like this I may get enough defaults to qualify for a federal bailout :D

Have you actually had any defaults or late payments?

I'm up to 10 loans - 2 of which are 50 dollar loans, the rest are 25 dollar loans, so about 300 bucks. It's almost addictive in that I REALLY look forward to when I can toss another 25 bucks thataway. I'm hoping that within a few months, I'll have a payment coming in nearly every day. When I get to that point, I'll be able to fund a new 25 dollar loan every month.

So far I've stuck with B and C grade loans. It's funny how badly-written some of the lower-grade loan requests are... they tend to make me think that the borrower is maybe not that savvy about a LOT of stuff, hence their lower credit rating, and the loan would therefore be outside my comfort zone, risk-wise.

ColonelDax 01-22-2010 11:09 AM

Cautionary article published this week by Slate's The Big Money website.

drachillix 01-22-2010 08:51 PM

Quote:

Originally Posted by Mama Zappa (Post 12025155)
Have you actually had any defaults or late payments?

Nah, just a little amused hyperbole..

drachillix 01-22-2010 09:00 PM

Quote:

Originally Posted by ColonelDax (Post 12025427)
Cautionary article published this week by Slate's The Big Money website.

Prosper had holes in its criteria where some very bad loans were being classified incorrectly by their own systems. LC, although far from immune has not been anything near like that.

Mama Zappa 01-22-2010 09:02 PM

Quote:

Originally Posted by ColonelDax (Post 12025427)
Cautionary article published this week by Slate's The Big Money website.

Interesting article!

While LC's model is somewhat different, I'd be interested to see how the historical default rate has shaken out with them vs. Prosper. If you noodle around LCs site, you can find average actual default rates by loan category which is informative - including the actual rate of return for the lower grades being pretty pathetic indeed (not negative, but say 5%).

I'm not investing anything I can't afford to lose, and figure that at the very least I'm getting some entertainment value out of it.

I might drop the author an email and ask if he's thinking of looking at Lending Club as well.

Mama Zappa 02-05-2010 10:08 AM

Here's a weird status:

I've got a loan that was issued on 1/15. The first payment is due 2/19. As in, no payments are due.

Yet, on the individual loan page, it shows
"2/4/10 (Thursday) Contacted a 3rd party or borrowers acquaintance
2/3/10 (Wednesday) Contacted a 3rd party or borrowers acquaintance".

This would make sense if the loan were overdue, but it isn't. Anyone have any idea what this means?

drachillix 02-11-2010 11:47 PM

Had a little flurry of payments come in over the last week or so can't let $7.52 sit around now.. Thus loan #17 was born.

Sateryn76 02-12-2010 10:15 AM

Boo! This is a great idea for me, both on the lending and borrowing side - but I'm in Indiana! I'm not allowed to participate!

Does anyone know of a group like this that is available in all (my) state? Does anyone know why/who I can talk to make this change in my state?

I'm bummed...

Mama Zappa 02-12-2010 10:23 AM

Quote:

Originally Posted by Sateryn76 (Post 12109911)
Boo! This is a great idea for me, both on the lending and borrowing side - but I'm in Indiana! I'm not allowed to participate!

Does anyone know of a group like this that is available in all (my) state? Does anyone know why/who I can talk to make this change in my state?

I'm bummed...

Check to see if Prosper.com takes lenders from your state. Though it's worth reading up on the issues mentioned in the article linked above.

So LC won't even *lend* to you? Interesting.

I don't completely understand why they have it limited to some states. Dunno if it's something LC can fix in time, or the state has to approve something.

On my own portfolio: I still don't know why that one loan has some collection activity already even though the payment isn't scheduled for another week. The borrower's credit score has also dropped - which may be due to this loan (increased debt), or something else entirely. I'll post once I know more about that.

On the plus side, I've got just over 4 bucks in available cash due to 5 loans paying in the last week or so, and I have 4-5 more that should be credited within the week. So I'll just need to throw another 15ish bucks to LC to fund my next loan.

Jorge_Burrito 02-12-2010 12:04 PM

I lent on prosper for awhile. My experience was even with those with really high credit scores there was more defaults than what I was expecting (and seemingly more than what prospers statistics showed). I would get paid for several months or more, but quite a few defaulted soon after that. Many of course did pay the whole length of the loan, but overall I think I only made about 2 or 3% out of it, which just wasn't worth the risk compared to what I could make out of CDs.

Because of this relatively high risk of default, it is important to spread out your money as much as possible.

Mama Zappa 02-24-2010 09:59 AM

Quote:

Originally Posted by Mama Zappa (Post 12109961)
...
On my own portfolio: I still don't know why that one loan has some collection activity already even though the payment isn't scheduled for another week. The borrower's credit score has also dropped - which may be due to this loan (increased debt), or something else entirely. I'll post once I know more about that. ...

Looks like this one is going south. The first payment was due on 2/19. While it always takes 4 business days to get a payment credited, right now I see several additional lines of collections activity:
2/24/10 (Wednesday) Contacted a 3rd party or borrowers acquaintance
2/23/10 (Tuesday) Collections Agency contacted a 3rd party or borrowers acquaintance
2/23/10 (Tuesday) Contacted a 3rd party or borrowers acquaintance
2/4/10 (Thursday) Contacted a 3rd party or borrowers acquaintance
2/3/10 (Wednesday) Contacted a 3rd party or borrowers acquaintance

I remember picking this particular loan because the borrower is active-duty military and I seem to recall their CO's can get in their face if they have issues in managing their personal lives.

Oh well...

Chessic Sense 02-24-2010 01:02 PM

Where other sites have failed, Lending Club has succeeded. See, on Prosper and that other one I can't think of right now, people bid down loans too low. People were so anxious to put their money in the pot that, like a Vegas casino, they didn't care that the odds were against them. Lending Club solved that, though. They set the interest rate and they keep it at a level that's still going to turn a profit even at historical default rates.

The tools really help too. I can break down the loans not only by credit score, but also by type. And stats are kept on each of those categories so that I can look up how much and how often these loans go bad.

I'm making money so far. It's nothing fantastic- something like 5%- but it beats a savings account and it's more fun. ::shrug::

ETA: I started in Aug 08 with $2,000. I now have $2,157, $2007 of which is still outstanding. I'll probably toss the $150 back into circulation soon.

Mama Zappa 03-03-2010 08:41 PM

To my surprise, that loan that seems to be in trouble actually completed the first payment during the grace period. It was due on the 19th (a Friday). Typically, a payment has been crediting to my account 4 business days later, which would be Thursday the 25th in this case. It actually completed yesterday, the 2nd. There were numerous "collection actions" listed against it.

drachillix 03-13-2010 10:06 PM

I hope your loan keeps up the payments, I just posted loan #20 and so far not a late payment yet.

Mama Zappa 03-25-2010 01:14 PM

Well, I had a bit of a surprise just now. My "troubled" loan had its second payment due last Friday the 19th. It seems to be taking 4 business days after the due date, for a payment to be credit, so I popped in this morning to see if it had. Not surprisingly, it hadn't - and there were a couple of "collections activities" earlier this week. I was assuming it was going to be late again.

Then I logged in just now and saw "available cash: 50-something". Bwuh?

That "bad" loan just paid in full!

Time to fund another loan!

drachillix 03-27-2010 03:48 PM

Quote:

Originally Posted by Mama Zappa (Post 12265941)
That "bad" loan just paid in full!

Time to fund another loan!

Cool :cool:

Mama Zappa 05-13-2010 08:16 PM

Update, in case anyone is interested.

They've just started offering 5 year loans (60 months). Not sure when / whether I'll invest in one of those, I'll have to think about it.

I'm up to about 22/23 loans, most for 25.00 but a handful for 50.00. So far I've stuck to B/C grade loans except for one D-grade loan a month or so ago.

No defaults yet. One loan was a couple of days late last week but it paid well within the grace period. Another loan prepaid about half its principal last month which got immediately reinvested.

I toss in 5/10 bucks when I have it to spare and that, plus accumulated payments, soon becomes enough to fund a new loan. A couple more loans, and a month's payments will total enough to invest in a whole new loan without my having to top the account up.

My total investment is 543 dollars (for 650 dollars on loans - the difference being principal/interest payments and prepayments). I've earned 15 dollars in interest, which is a LOT more than the cash portion of my IRA is earning!

So far it's working well enough. Annoyances include the long lead time between wanting to invest, and the transfer from the bank being credited to the account; long hold time between when you commit money to a loan and the time it actually funds and starts earning interest; long hold time (4+ business days) between when a payment is due and when it's credited to the account.... basically in addition to their fees, LendingClub probably makes a non-trivial amount on the float. I don't mind much, it's really just a mild annoyance.

ZipperJJ 05-13-2010 10:10 PM

Thanks for keeping us updated on this. I am really interested in reading how it pans out, including the ups and downs!

drachillix 05-14-2010 10:11 PM

23 loans $747, have one about to go 30 days late. To avoid mama zappas unpleasant waits for funds I set up a regular weekly draw from my checking account.

Still loving it despite worries that one loan is gonna take $45 to the great beyond...

I figure it's gonna be a waiting game, and as my portfolio grows, the occasional default will be annoying but not worrisome.

Mama Zappa 05-16-2010 08:31 PM

Quote:

Originally Posted by drachillix (Post 12456555)
23 loans $747, have one about to go 30 days late. To avoid mama zappas unpleasant waits for funds I set up a regular weekly draw from my checking account.

Still loving it despite worries that one loan is gonna take $45 to the great beyond...

I figure it's gonna be a waiting game, and as my portfolio grows, the occasional default will be annoying but not worrisome.

Ouch - with a principal similar to what I've got invested, that'll more than wipe out your earnings to date!

It's always possible the loan will get caught up at some point. Did the loan pay on time until now? or were there any "in grace period" payments?

What sort of loan was it? A/B/C/whatever class? What was the stated loan purpose? In hindsight, does anything about it look like it should have sent up warning signals?

drachillix 05-17-2010 12:07 PM

Quote:

Originally Posted by Mama Zappa (Post 12462090)
Ouch - with a principal similar to what I've got invested, that'll more than wipe out your earnings to date!

It's always possible the loan will get caught up at some point. Did the loan pay on time until now? or were there any "in grace period" payments?

What sort of loan was it? A/B/C/whatever class? What was the stated loan purpose? In hindsight, does anything about it look like it should have sent up warning signals?

Its a D4, business loan. It was for an expansion of an existing business, good verified income (which was like 15x what the loan payment would be), no huge flares otherwise.

It was one of my earlier investments and they made payments fine for a while, yup I will actually go about $20 in the hole overall if they default. Right now...not much I can do but wait.

Mama Zappa 07-05-2010 11:45 AM

How'd things work out with that D-class loan?

My very first loan, a C-1 class loan for medical expenses, is almost certainly going south - I've watched the borrower's credit rating plummet over the last few months from the upper 600s to the mid 500s. The borrower contacted Lending Club in late April (that's the notation, doesn't say what was said). And the payment that was initialized a week ago bounced on Friday. I'll be down 20ish bucks on that one if it isn't brought current.

MannyL 07-05-2010 12:00 PM

Well I have 3 loans that I funded $25.00 in each

C Grade @14.22 has been current with no problems
B Grade @10.25 has been current with no problems

But my 3rd loan is a D Grade and they are now 31-120 days late. I expect this one to be a total loss

The funny thing is they were asking for the smallest loan compared to the others I'm invested in. 16K for consolidation.

Chessic Sense 07-05-2010 01:21 PM

I've spent the past two weeks doing data analysis on the loans thus far. Here's what I've learned:

* Credit Refis are among the most solid investments, along with debt consols. Those have both low default rates (approx 9%) and a robust sample size (several thousand). But there are two sneaky categories that pan out well- Weddings and vacations. Why? Who knows? My theory is that a wedding isn't just a big expenditure- it's the consolidation of two households into one. When people get married, they tend not to have kids, they tend to have jobs, and most importantly, they move in together. They only pay one rent and utility set per month instead of two.
Why vacations? I think it's because the amounts are small. It's easy to pay back a $1,000 loan. And people that take expensive vacations tend to be older and more secure in their jobs. After all, if you have no job, what's there to take a vacation from?
I still recommend sticking with the credit cards and refis, though, as they've proven themselves while the other two are two...nascent.

*Business loans and medical expenses are poison. They have defaults of over 14%!

* All the profit is in the A and B categories. You can get lucky with the C1 and maybe C2 categories if you're careful, but don't go any lower than that. The lower grades (D-G) have default rates that absolutely eclipse the profit- something like 35%! A grade loans almost never default, especially if you stick to debt sonsols and CC refis.

* The graphs of profit vs. grade looks like an ocean wave. The peaks are at the x1 and x5 grades. So if you want, say, a B loan, go with B1 and B5. For some reason, the x4 grades tend to do well too.

* Almost no one defaults in the first year. Most defaulters quit paying around month 14. The highest "default months" are 20-24. I have to look at these numbers more, because I'm not sure I did them right.

Disclosures: My portfolio has 219 loans totaling $5,800 in outstanding principle. I'm waiting on another $2,000 to go through funding. I've collected $414 and lost $201 for a net of $213 since I began investing. Right now I'm earning 10.03%


When I get back to the office tomorrow where I have the data spreadsheet, I'll post some specific numbers instead of trying to do it from memory. Good luck, everyone.

drachillix 07-05-2010 01:39 PM

Quote:

Originally Posted by Chessic Sense (Post 12651005)
The lower grades (D-G) have default rates that absolutely eclipse the profit- something like 35%! A grade loans almost never default, especially if you stick to debt sonsols and CC refis.

Maybe I am wrong to think this way but wouldn't this start to sound like a failure of lending clubs systems? If it is a viable system and I buy say 10,000 $25 loan buyins of G Class, I should still be making some money long haul if they have built their system correctly.

Chessic Sense 07-05-2010 01:57 PM

Quote:

Originally Posted by drachillix (Post 12651047)
Maybe I am wrong to think this way but wouldn't this start to sound like a failure of lending clubs systems? If it is a viable system and I buy say 10,000 $25 loan buyins of G Class, I should still be making some money long haul if they have built their system correctly.

Depends on what you think the objective of their system is. If you think it's to make you money, you're wrong. It's to make them money. Every time they originate a loan, they get 3% in origination fees. And when the money rolls back in, they get 1% off the top of that. So that's 4% (plus the fraction of interest) that they get for every loan that goes out.

If they make the E, F, and G loans to pay 35% or higher, then they're not going to make any money. Who would borrow at that rate? Only crazy people would take that kind of rate, which means that the default rate would probably rise, causing the cycle to repeat.

The fact of the matter is, if you're borrowing at 25%, you're not going to pay it back. Period. The only way to make junk loans profitable is to not offer them at all. At least then investors are getting a whopping 0% on their money instead of the more common -9% return.

Mama Zappa 07-05-2010 03:09 PM

Quote:

Originally Posted by Chessic Sense (Post 12651094)
Depends on what you think the objective of their system is. If you think it's to make you money, you're wrong. It's to make them money. Every time they originate a loan, they get 3% in origination fees. And when the money rolls back in, they get 1% off the top of that. So that's 4% (plus the fraction of interest) that they get for every loan that goes out.....

Preach it!

LC's business model guarantees their profit, not the investors'. Which is fine - it's all stated right up front. They're not going to lose money - once a loan goes out the door, their profit is assured. They could in theory refrain from collections activity - it's not like their coffers are at risk anyway!

However, it's in their best interest to NOT misrepresent loans, or they wouldn't get investors, therefore no origination fees or monthly payment fees.

Chessic Sense, I'd be interested in how you arrived at the 35% default rate. LC's own figures here show that out of 210 G-class loans, 58 are late or in default (more like 28%). I guess that's not such a huge difference overall.

Something I've noticed since they started offering 60 month loans: they seem to not get fully funded. Or at least when you look at them close to their expiration date, they're often at far less than 50% funding. I wonder how that'll all work out for them.

Chessic Sense 07-06-2010 10:15 PM

Quote:

Originally Posted by Mama Zappa (Post 12651279)
Chessic Sense, I'd be interested in how you arrived at the 35% default rate. LC's own figures here show that out of 210 G-class loans, 58 are late or in default (more like 28%). I guess that's not such a huge difference overall.

I took loans that were over a year old. LendingClub doesn't do that. I think they only count 6-month old loans. So they're boosting their numbers. Then I added in the late loans, assuming they'll go bad. Since LendingClub doesn't do that either, they get to back up another 6 months. So if you took out a loan 364 days ago, and never paid a dime on it, you still wouldn't show up in their "default" rate. I put it in quotes because it's really just some math wizardry they use to come up with a nice-looking number.

I talked to Jeff, a sales associate, and he told me that they count Charge Offs as defaults as well. "It's just an accounting term," he said, "an industry standard." I'm not sure I believe him. Nowhere on the site does it mention charge offs being counted as a default. I mean, come on - historical default rates of less than 1%? Are you joking?

Go to the statistics page and put in custom dates of July, 2007, and any date in 2008. I used Sep 30. You'll see those bright, shiny returns drop like rocks. And it confirms what I've said here - A is the best grade because they never default, especially if you also pick by purpose.

I'm also told that the largest investor on the platform has over $7 million invested. Jeff told me some magic number of loans you can have that will "guarantee" a profit, whether large or small. I think it was, like, 75 loans. He said no one that has that many loans has lost money so far. I'll get back to you on that too.


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