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.
Okay, the trading platform did ask for an income, but they had an appropriate box for mine 
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.
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.
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.
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 :p)
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?
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.
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.
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.
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.
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.
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:
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!
Dunno - but if you figure it was lateish on the 16th (Thursday), and they’d review it some time on Friday / this morning, then they have to get around to sending you notification… it’s barely outside the 1 business day limit.
If you don’t hear by tomorrow morning, try to contact them.
Just give it a few more days. It took them most of a week to process mine, but they did it.
Ah thank you. That does help. I was wondering if I’d just thrown my $250 into a bottomless pit. I did send a WTF? email (nicely worded, of course) to LC today though.
Ooooh ooooooh - 2+ weeks later and it’s rocketed to 8.37 percent!! LOL!!
I guess getting further and further away from that default, with no further losses, is gradually diluting its effect. As I’m concentrating on B/C class loans, hopefully it’ll get closer to 10ish percent.
After 2 months the account summary shows me as making 11%, BUT I have two loans (out of 41) that are 16 - 30 days late on their first payment. One was A5, the other C3. Their credit scores have fallen 5 and 4 ranges respectively.
Both were for weddings, so I’m hoping they just went on honeymoon and forgot to set up the loan payments.
When I first started, Mama, I didn’t diversify enough and put $100-$200 toward each loan. So I’m making more than $10 in interest each year from those loans. That’s probably why they’re reporting to the IRS. And yes, I did get a 1099 in the mail.
Ah - that makes sense.
Does your 1099 include anything but those larger loans? (can you even tell?).
My stats:
Initial $250 investment in 10 loans in Oct 2010. Since then, I’ve taken the proceeds and purchased two new loans.
6 A
5 B
1 C
11 are current with no late payments or defaults. One is issued and pending. 9.20% annual ROI.
I have another one that’s misbehaving. I just pulled up my earliest half dozen loans, and all are paying except for a C2 from December '09. One of the early payments on that loan was a day or so late “completed in grace period” (due 6/28/2010, completed 7/4/2010). I assumed that was a timing issue - for example the 5/28/10 payment wasn’t completed until 6/4 and that was “on time”.
This month, however, the loan now reads “on payment plan” and the next scheduled payment for 6/28 is 36 cents vs 84. The next few are like that, then there’s one for 1.07 (which won’t catch them up entirely). This all happened in the last couple of days.
This loan had been relatively steady, credit score-wise, until about 4 months ago. Then it dropped one notch, and a couple months later dropped 3 notches in a single month. It’s actually rebounded a notch in the past 2 months, but clearly they’ve had something going on in their lives.
So I was finally approved by the Grand High Council of FOLIOfn and I have now purchased 10 slightly pre-enjoyed notes on the trading platform for the princely sum of $244.56. Why is it taking so long to for my order status to go from “Pending” to whatever is after that? I’m sure that this delay is the only thing holding me back from a life of leisure and fabulous riches!!!
And to all those who said that the search feature on the trading platform sucked - wow you weren’t kidding!