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?
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.
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.
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.
I’ve spent the past two weeks doing data analysis on the loans thus far. Here’s what I’ve learned:
*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.
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.
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.
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.
Interesting!
The one quibble / question I have is: why are you questioning that a charge-off is counted as a default? Presumably they only charge off a loan that has gone well into default (or do you think they’re double-counting?).
I’m raising an eyebrow on the “size that guarantees profit” since, after all, a portfolio of 75 G class loans might well lose money!
It’s not a theoretical point, it’s a statistical fact. Jeff wasn’t saying that 75 loans can’t lose money, he was saying that no one with 75 loans is losing money. I guess the people that have that many loans aren’t buying G class loans. Subtle difference.
Here’s my count. These are loans that were issued and are at least a year old, so they’ve had time to go bad.
Good Late Bad Grand Total
Grade
A1 38 1 39
A2 115 1 3 119
A3 188 4 3 195
A4 230 4 3 237
A5 246 6 10 262
B1 146 7 12 165
B2 173 7 20 200
B3 182 8 18 208
B4 228 9 22 259
B5 251 5 31 287
C1 239 17 29 285
C2 205 9 29 243
C3 197 18 32 247
C4 221 7 30 258
C5 185 8 27 220
D1 156 8 27 191
D2 153 10 24 187
D3 135 10 28 173
D4 133 9 29 171
D5 96 11 18 125
E1 85 10 22 117
E2 102 11 23 136
E3 79 7 16 102
E4 65 7 23 95
E5 63 5 7 75
F1 43 2 14 59
F2 30 3 14 47
F3 23 2 12 37
F4 16 2 13 31
F5 14 3 9 26
G1 17 3 5 25
G2 9 5 7 21
G3 12 2 5 19
G4 21 2 10 33
G5 25 4 10 39
Grand Total 4121 226 586 4933
If you do (Late+Bad)/Total, you get Chessic Sense’s True Default Rate:
A1 2.56%
A2 3.36%
A3 3.59%
A4 2.95%
A5 6.11%
B1 11.52%
B2 13.50%
B3 12.50%
B4 11.97%
B5 12.54%
C1 16.14%
C2 15.64%
C3 20.24%
C4 14.34%
C5 15.91%
D1 18.32%
D2 18.18%
D3 21.97%
D4 22.22%
D5 23.20%
E1 27.35%
E2 25.00%
E3 22.55%
E4 31.58%
E5 16.00%
F1 27.12%
F2 36.17%
F3 37.84%
F4 48.39%
F5 46.15%
G1 32.00%
G2 57.14%
G3 36.84%
G4 36.36%
G5 35.90%
If you break it out by purpose, using >6mo old loans, you get:
Purpose Bad Total % Bad
car 23 257 8.95%
CC Refi 95 1106 8.59%
consol 390 3337 11.69%
edu 50 304 16.45%
home Imp 67 560 11.96%
house 14 104 13.46%
purchase 29 358 8.10%
medical 21 149 14.09%
moving 13 112 11.61%
other 148 1098 13.48%
business 102 548 18.61%
vacation 2 45 4.44%
wedding 19 211 9.00%
I’ve bolded the ones of note here. Notice how high the small business loans and medical loans are vs. debt and vacations. Also notice the small sample size of the vacations and weddings compared to the CC Refi and the Debt Consols.
I just had an interesting experience, one of my loans paid off in less than a month.
It made $0.21 in interest
Lending club charged me $0.25 in fees 
Well I guess its better than losing it to a bad loan.
I’m having great fun just following this thread. But then my partner is an accountant.
I have a sad life
LOL and 
at the same time. Yeah, better than losing it to a bad loan. If they’d only held off just a few more days you’d at least have broken even!
Whatever happened with that class D loan that was heading south?
My first ever loan is now 16-30 days late - a couple of payment attempts failed and there’s now a payment plan in place. It was due on the 28th of last month. I’d be out just shy of 21 dollars if it completely goes south.
An update:
That loan that was misbehaving before hasn’t had a payment since the May 28th payment; there’ve been numerous attempts since then.
That was the first loan I participated in. Loan #2 (an adoption loan) is fine. Loan #3 (debt consolidation) is current but the borrower contacted LC in late July to set up a payment plan. That payment actually got made on time but we’ll see how the next few work out.
I don’t think any others are troubled. Unfortunately there’s not an easy way to look at that should of looking at each loan individually. I wish LC would have a report available that listed all loans and their statuses / most recent collections-related actions.
Currently hovering at 28 loans The one that was going south before still has not paid anything further. I have another one that just went 30 days late another class D I bought into early on, hopefully this one pulls through.
This has been VERY eye opening to me with regard to the world of loans and credit.
OTOH i still check daily and love watching the interest accrue. I have an auto payment for $10/week and combine that with payments to issue new loans whenever $50 builds up.
My bad loan’s most recent activities are:
9/10/10 (Friday) Borrower not located (skip trace)
9/10/10 (Friday) Mail service returned pre-collect letter
9/2/10 (Thursday) Collections Agency attempted to contact borrower
.
.
.
8/20/10 (Friday) Engaged external collections agency
So I think it’s quite safe to say I’m out the 20.86 s/he still owes. All my others (including the one D class loan) are still current. One of my other initial 3 loans (the skip was the first one) had contacted Lending Club in June to set up a payment plan. The July payment was “completed within grace period”… the August 14 payment was made on time, and there’s no 9/14 payment listed. The 10/14 payment says “processing, in payment plan”. Not sure what all that is about.
And one other weird one: I had a loan that went a few days late on its first payment (February). When the second payment was due, it was paid in full. Yet I looked at it just now and under Collections History, it says “8/30/10 (Monday) Contacted a 3rd party or borrowers acquaintance”. 
I find this thread fascinating. Right now I’m just stashing my cash in a savings account (with as high an interest as I can find, from thislink someone posted earlier) but once I have 4-6 months of reserve built up, I’ll certainly be doing the Lending Club.