I started in April with a small amount to get a feel for how Lending Club works. When a couple of CD’s came to term, I moved a percentage of the CD’s to Lending Club and have been adding a small amount monthly. I’m up to about $4700 invested (including reinvestment) and got about $30.00 in interest in November.
My plan right from the start was to carry at least 150 loans at $25.00 each in order to diversify enough to soften the bumps in the road. I’m not real happy with the one loan that is going south but I did expect to have some problems.
Unless things change drastically, I will continue to add enough monthly to purchase two or three loans on top of reinvesting any payments.
Reading the posts here and on some of the blogs around has been very helpful.
Doug
I agree - Lending Club’s immediate risk when a loan goes bad is, basically, zero. They get their money up front in the form of a fee, and they get their cut of every payment they receive. They’re just acting as a servicer. Kind of like when a bank sells a mortgage - the bank has gotten some up-front fees and they presumably get some money if they continue to collect the payments for, say, Fannie Mae.
The main reasons I see them offering reasonable diligence in collecting is this:
They do sometimes invest their own funds
If they don’t do due diligence and try to collect, investors won’t put money in, they won’t have funds to lend, and there goes their income stream.
Regarding your 25 dollars: in fact, when you sign on as a lender, I believe you explicitly waive the ability to go after the borrower.
I won’t ever be putting in a huge sum of money. I’ve added just under 1200 in cash over 2 years; current value of my loans is 2,000 dollars (with reinvesting repayments). Total interest received is 154 dollars, subtract 35 in defaults and 10 in fees, I’m 100ish dollars ahead.
But I’m just not comfortable with investing money that I can’t afford to lose (e.g. retirement money); the 1200ish, plus the 20 a month I’m adding, is fun money. I’ll periodically throw in 100 bucks or so when I have a small windfall (e.g. tax refund).
While I started over a year ago, I’ve only funded 7 notes, so my experience isn’t as broad as many of you. Fortunately (either due to small sample size or my incredible skill picking notes :rolleyes:) I haven’t had any defaults.
LC shows my Net Annualized Return as 12.27%. I have:
Issued and current: 6
Fully paid: 1
I invest on Foliofn (secondary market) as well, and have had an account for a little over 13 months, so around the same length of time as you.
I’m sorry you’ve lost money. It can be a little tricky selecting loans on the secondary market because your universe of loans is comprised of existing notes others have rejected.
On the plus side, however, you can select loans that have a history of timely payments only, which is what I do. I also only select loans that have made at least 5 payments, so for a 60 month loan, I’ll only purchase the note if there are 54 payments or less remaining. For a 36 month loan, I’ll only purchase the note if there are 31 payments or less remaining. We also have access to a line graph of the borrower’s credit score fluctuations for every month of the life of the loan, which I find invaluable in determining investment worthiness before I purchase.
There is, of course, no guarantee that loans still won’t go bad no matter how diligently you evaluate them, but employing the tools and tactics above should help to reduce the potential of selecting notes that will go into arrears, or ultimately default.
I’m surprised as many of you are doing well as you are, really. I know when I looked at Lendingclub & Prosper.com from a borrowers perspective, the rates were higher than what I could get at a local bank or credit union (A credit). That led me to believe there would have to be some reason other than the rates to use them, and the reasons seemed to mostly be negative - easier fraud, less thorough vetting allowing them to hide some sort of negative non-credit impacting event like loss of a job or pending lawsuit, etc.
Glad to see those of you on lendingclub are mostly doing ok - I don’t think the prosper.com people did as well, did they ?
Well, there’s always lofty idealism. Perhaps there are some determined proletariats out there who would rather borrow from their 99%er peers than from Big Banking and enrich the 1% even further, even if it means paying a higher interest rate.
Three oddnesses going on right now:
A B4 that has been paying on time since it started in June - but which had a 4-notch drop in credit score in one month and another notch the month after that (and 4 on-time payments since then) was due on the 4th. Since those payments are always credited 4 business days after the “payment date”, it should have been credited yesterday. So something’s going south with this one, not surprisingly.
A D5 that’s been paying on time since its first payment in August has not had its credit score updated since August. I actually reported that to Lending Club, and they said they’d look into it. I haven’t heard anything back about it yet. Its payment should be credited to me today.
And I have 25 tied up in an “in funding” loan - that has had all its funding for well over a week but has not yet been issued. It was applied for on 12/27, which is over 2 weeks ago. It’s an A4. No clue what’s going on there.
Rate of return now is 8.95% but that B4 loan is now “in grace period” so that will be dropping. The one that’s been in review for 10ish days now is STILL in review. Bizarre.
Outside of 401K, few stocks, CD’s, LC to me is a fun way to try to make a few dollars and hopefully help people who are trying to pay down their own CC and vehicle debt versus higher bank rates. I’ve done both Prosper (started 2006) and LC, I stopped w/ Prosper around 2008. Started with LC in 2008, I can tell you I far like LC better that prosper, seems tighter controls of loan process and having fixed return based on a few factors (A-G) works better, I also try to stick to lower amount loans for CC and vehicle loans, skip wedding, medical, and business loans. I understand Prosper changed their system/ways a few years back, I lost money on Prosper (made a whopping -1.37% return on ~ 21K invested across hundreds of notes).
In my 4 years at LC – so far 8.65% actual return (current weighted average is 11.08%), and I know a few of the newer loans will statistically fail. I invest both in the 36 and 60 months. I’m sure as a few of my late 31+ below will fail I’ll be dropping a few basis points down to lower 8% arena. As long as I can track 5%+ until CD’s come back up I’m happy with LC. I’ll keep some money growing here at LC. Today I can easily reinvest monthly in to 15-20 new loans from principal and interest payments.
Call me crazy, but I look at it as a forced piggy bank savings account. That if I lose my job today, I can take out the generated principal and interest every few weeks and help pay bills for a few years while looking for a new job. I’d love to get to the point of having $1K a month in interest alone coming out of LC, but that’s over a decade away with putting in a $200-400 a month at current pace. Only time will tell.
• In Funding 8 $225
• Issued & Current 489 $12,985
• Fully Paid 72 $2,139
• Late 16 - 30 Days 0 $0
• Late 31 - 120 Days 5 $87
• Default 0 $0
• Charged Off 10 $215
A (35%)
B (34%)
C (18%)
D (8%)
E (2%)
F (2%)
G (1%)
If you are like everyone else in this thread, about 8 - 9% If you are me, somewhere less than 0. I am -1.2% currently with 3 defaults out of 45 loans in the first nine months. I have a 4th heading that way (an A4 loan, no less).
Good question. I have not found a definitive answer, but this guy does.
It isn’t really a capital gain, since any profit you make is from interest income.
I’ve been netting out my income for tax purposes - I take all the interest income for the year, subtract out all fees, and subtract any charge-offs. I add what’s left to my tax return as interest income. There might be a fancier way that we’re “supposed” to do it, but it would be impossible for me to figure it out!! And this way the government gets its tax cut of what I believe is the correct figure.
None of my loans are enough to trigger reporting via the actual 1099-OID that Lending Club will issue you if the income tops 10.00 a year. on a single loan. With the investment amount you mention, and the number of loans, I suspect you will go over that income figure on most of them.
I’ve been a lender for just over 2 years. Small potatoes for the most part, my portfolio is worth just over 1200 dollars right now. I throw in 20 a month, plus a bit extra when I have a small windfall, and have been reinvesting all repayments. My rate of return is currently 9%.
Had a pleasant surprise just now - my loan that was fixing to go bad (due on the 4th, hadn’t paid) apparently completed a payment on Friday. Late, but within the grace period. I won’t be at all surprised if it goes south in the future, their credit score has plummeted in recent months, but my potential loss just dropped by 63 cents, woohoo! :D.
I don’t think the poster means that the income is a capital gain. The question then becomes: Can defaulted loans be treated as capital losses to offset capital gains on other investments?
If you buy a bond, you will collect interest on the bond. If you sell the bond for less than you paid for it, that is a capital loss.
Yeah - after I saw the mention of using it as a loss, I did some mental calculations.
Say you have 500 in interest income (taxable at 25%) and 1000 in long-term capital gains (taxable at 15%) you’d pay 125 + 150 or 275 in taxes.
Say you’re at a 25% bracket, and you have 500 in interest (taxable at the full 25%) you’d pay 125 in tax on it.
If you have 100 in chargeoffs and you offset your interest, reducing it to 400, you’re now paying 100 + 150, or 250, in tax.
If you offset your capital gains, you’re paying 125 + 135, or 260, in tax.
I don’t recall whether the loss’s tax effect is different depending on whether it’s short-term or long-term or whether it’s actually offsetting gains or just reducing your income.
If you have net short term gains, then the short term loss will offset them. As short term gains are taxed at your marginal rate, then your tax saving will be at your marginal rate.
If you do not have short term gains but do have long term gains, then you will offset those, thereby just saving the 15% long term capital gains rate.
If you have no net capital gains, the loss can be used to offset income (up to $3,000), so again you will be saving at your marginal rate.
