Urgh.
No, you’d have to pay me a LOT more than your 83 cents to get me to eat any of that!! ;).
Update on my bad loan: it changed from “late 31-120 days” to “default” some time in the last day or so. Not sure whether there’s any chance of ever collecting anything on that. There’s one more status to go, “Charged off” which I guess is when they completely give up.
This was a medical expense loan (bearing out Chessic Sense’s analysis that those are bad luck). I think I have one other medical loan, that is still performing OK but IIRC it’s a higher grade.
Update on this. Your experience of four business days seems to be the norm. Turns out the 83 cent payment I received on 10/27 was for a loan that was due on 10/22. I have another note with an 83 cent payment scheduled for 10/26, and I confused the two because the payments were the same, and also because I didn’t realize that I’d receive a payment that was due on 10/22 on a note I purchased on 10/22 when I signed up.
So, in a nutshell, the payment I received on 10/27 was for a loan scheduled to be paid on 10/22, and the payment I show that was due on 10/26 is still showing a status of processing. Based on your experience, I should probably actually see the 83 cent payment for this loan credited to my account on 11/1. Also, as mentioned the other day, I have a loan with a payment scheduled for 10/28 in the amount of $1.61, showing a status of processing which, if things hold to what I’m expecting, should be credited to my account on 11/3.
At this point I’m wondering why more people don’t trade on Lending Club’s secondary market FOLIOfn. I’m receiving payments even though I signed up only a week ago, whereas main Lending Club lenders have to first wait for the loan they’ve invested in to become funded, and then another month before the first payment becomes due. I keep thinking I’m missing something, but haven’t, as yet, determined what it could be.
Two Week Update
Okay, it’s been two weeks since I signed up with Lending Club and began trading on their secondary market Foliofn. Here’s where I stand and what I’ve learned.
I’ve received payments on 6 of the 8 original loan notes I purchased two weeks ago, totaling $8.83, of which $1.08 is interest. The reason for this is most of the loans I purchased were due to be paid within two weeks after purchase, one of which was due the day I purchased it.
All loan payments that were due have now been paid. The next loan I have with a payment due will be November 8 which, as Mama Zappa advised, and I have since confirmed, will take four business days to process, so I’ll probably see that payment in my account on November 12.
I currently have accrued interest in the amount of $3.03, which is amount of interest I will receive, across all loans over the next 30 days if none go into arrears or I don’t purchase any additional notes.
As someone advised earlier, when you receive a payment, Lending Club takes 1 percent off the top, so if your payment is 84 cents, you get 83 cents and Lending Club gets 1 cent. What they don’t tell you is that 1 percent fee is rounded up. One of my recent payments was for $3.86, however, I received $3.82 because Lending Club took 4 cents. Because you’re charged on every payment over the course of a loan, depending on its term, this practice nets Lending Club more than the 1 percent they claim. So in the case of my $3.86 loan, over the course of a 36 month term, Lending Club will actually take $1.44 instead of $1.39 as they round up after each payment, and not based on the term. Is it a big deal? No, not really, but if you have hundreds of loans open with Lending club those few pennies per loan that you’re losing over the term will begin to add up.
One thing I learned with trading with Foliofn is you have to be very careful about the discount/markup. Purchasing a loan at a discount will allow you to realize a better return than average. The challenge there is the one of the reasons the loan may be sold at a discount is because the sellers are concerned the borrower may be preparing to default. In many cases, you will have no choice, if you want loans that are only good payers, to purchase at a slight markup. The challenge there is your return may be slightly less than what the original principal and interest value is at the point of sale. Loan notes with a markup generally have a much lower chance to default than those with a discount, but this could mean the difference of realizing 3% interest over the term instead of 9% the face value would suggest. The bottom line is it definitely pays to spend a little more time analyzing and crunching the numbers of any loan purchased on Foliofn.
More again soon.
Regarding the penny-rounding issue, supposedly on the last payment of the loan, a balloon payment is made and the accounting is a little bit different to account for that. So if your loan survives for the full term, it supposedly all balances out in the end.
I’ve got an appointment to talk with Jeff Migneault again on Monday. He’s supposed to convince me not to take my ball and go home because I have fears that Lending Club may be going under soon. When that happens, I’ll come back and tell you guys what he said.
Can you provide any info or links to news that led you to believe they may be in trouble or are considering closing down? I haven’t seen anything about this.
Chessic, are you able to simply get all of your money back that’s in existing loans? How would you go about doing this?
I can’t dig up a cite right now, but I was poking around the internet and found some blogs that were cautioning that if LC went under, that it would take all our loans with it. And with three million in losses this summer (again, citeless), I was afraid that their cash reserves were getting low.
Jeff has told me that’s not the case, however. He said that if Lending Club were to have absolutely no revenue stream…that is, if they didn’t collect a dime from anybody…they have enough cash to keep them in business for the next four years.
The business model was to turn profitable this year. But in April or May, a venture capitalist dropped a bunch of cash on them, so they’ve spent all that cash expanding, and are therefore at a deficit again. They plan to turn profitable by next year, he says.
From March 09 to March 10, they lost $10 million. I got that from their SEC filings available on their site. But it appears they have enough assets to last a while.
In other news, future development projects include cleaning up the trading platform so that the filters are more useful and actually function. Jeff told me that the best way to get changes made is to use the feedback button on the site.
So that’s the jist of it. With the interest rates lowered, I don’t know if I’m actually going to keep investing or not. But I’m not worried about them walking with our money anymore.
Depends on your definition of “simply”. I could just sell the loans on the trading platform. Supposedly, they’ll sell quickly. But I would just wait for the loans to run out over the next 3/5 years.
I wonder when that’ll be. As someone who uses the trading platform exclusively, I concur that their filters are weak, and that’s an understatement.
Ah, so the $10 million loss is solely due to the new debt on their books because of the investment, and not because of a poor business model or faulty projections. That makes me feel a little better, but I do wonder why they needed such a large infusion all at once.
Very interesting stuff, Chessic!
Any updates from anyone? Nothing exciting here; my bad loan is still bad; one other that had made partial prepayments just paid in full; am about to invest in the 30th (roughly) loan, which will put me very close to enough monthly income to fund a new loan each month with no cash infusions.
One that I funded a couple of days ago behaved interestingly. It was 5 days out from its funding date, and funding was coming in VERY slowly (as in, hours of sitting at the same amount pledged). Then suddenly it was fully funded.
Does that sort of thing seem to mean that Lending Club has funded the rest?
The loan was an A4 for about 7 grand, so not too high-risk-seeming.
It’s been a little over a month since I joined. I now have 16 loan notes; have received $26.95 in payments, $4.51 of which is interest. I can purchase another note now if I want, but I’m holding off until next week when I should have a little over $30 to reinvest.
The payment dates for my loan notes are spread out enough that I’m receiving a credit into my account every three days or so.
So far, it’s going pretty well for me, I’d say. I seem to have gotten over the initial glee of a month ago when I was checking my account every five milliseconds, and am down to checking maybe twice a week.
According to the prospectus, it looks like it does:
But here’s the really important thing that I was prompted to look up based on the scare rumors that Chessic Sense mentioned. It is false that if Lending Club were to go out of business the loans would just evaporate.
The risk with all A1 loans is that they may pay off too early. If a loan pays off early, then you will not make any money in interest.
I currently have 131 loans, 124 current, 6 paid off (3 A5, 1 B1, 1 B3, and 1 E1), and 1 late (B4 headed toward default).
Things to watch out for… Some loans have stated they own their home when in fact they were children of the owners living rent free.
My default claimed to be a chef at a 5 star restaurant.
Tip: Read the application carefully. It takes time, and it’s your money.
Also, open a trading account and read some of the loans that are in default to see what those loan applications look like. It seems to me that some of those applications respond with very short answers…
Good Luck and Have Fun!
curious11 - very good suggestion to read the info on loans being offered on the trading platform!!
How did you find out about the children of owners? did someone confess to that later on when questions were asked?
True, though unless they pay off in the first month, you’re not losing money (as happened to someone upstream… fees were several pennies more than accrued interest!).
I’m not seeing my A-class loans pay off early so far; the two loans that have paid off are C and B. The C class loan, I think I made about 25 cents (it paid off in 2 months) and the B class paid off gradually over about 6 months. I think I made about 50 cents on that one. Not a fortune, to be sure!
I’m not saying that All A1 or Ax loans will pay off early, someone was wondering if there was any downside to only investing in A1 loans. 3 of my Ax loans have paid off early.
As for the rent free children, there was a question that asked if their (the borrowers) name was on the deed, and the explanation came out in response. In another loan, the borrower’s statement contained the line, “since I live with my parents rent free…I will have the money to pay back the loan” which contridicted the home ownership check box. When questioned about the contridiction, the borrower reported that they were unable to change the home ownership from own to rent.
Don’t forget, you can ask questions of the borrower.
Wow, I can’t believe people have the balls they do. One summer in college I was working for a social networking site; I could live anywhere since our face to face meetings were rare so I lived at home rent-free. I can’t imagine pretending those assets were mine. Crazy.