Lending Club Update: May 2012

I’ve now been investing with Lending Club for a about 9 months, so I feel my results are finally starting to become more legitimate.  My last update was in February, and I’ll try to continue to provide a quarterly report of my performance.  I originally wrote about my strategy (which was using a filter on lendstats.com to find the most optimal notes to invest in) and I am targeting a 14%-15% overall return on investment.  So far, things are looking good.  If you haven’t read the lending club investment strategy post, I recommend you go back and read that before you read this update.


The Funding Process

In order to increase my overall ROI with Lending Club, I set up a pretty strict filter on lendstats.com.  I only invest in high return loans, and filter out high risk characteristics such as loans for education or loans to people that have not held long term employment.  Historically, the data has shown that these loans are more likely to default.  In my February update I mentioned that I had switched from $25/loan to $50/loan to get all my money invested, but since then I’ve returned back to $25/loan.  The reason is because I now have all of my money invested, so each week I take my free cash from loan payments and I reinvest that into new loans.  It’s sort of a LendingClub version of a DRIP program.

In order to keep all my money active in loans, I spent about 5 minutes per week to look for loans and click a bunch of buttons to confirm the loans.

In order to purchase new loans, all I need to do is click on this link.  Then I scroll down to the bottom and click on the links under “Active Listings.” That brings up the loan at Lending Club, and I click the “Invest” button.  It’s pretty quick and easy, and actually I kind of enjoy the process because it cheers me up to see all the new cash I have waiting to be reinvested.


The Results

In February, I was reporting 14.34% net annualized returns, with reasons to believe it may go up, and also reasons to believe that number may drop.  In May, I have seen that number rise to over 15%, but I still see reasons to believe it might go down.  However, I’m becoming more optimistic that 14-15% is achievable, and I now have very high confidence I will achieve my goal of 12% ROI long term.

Here are the numbers:

I’ve made a total of 343 loans with an account that I initially opened with $10,000.  I’m currently returning 15.34% with 3 notes charged off (defaulted).  This is very good news, but there is also some bad news.  Currently I have 8 loans that are late over 30 days, and Lending Club reports about 50% of loans in this category will ultimately be defaulted.  I also am 8-9 months into most of my investments, so I’m starting to reach the critical zone on these loans where the default rate is highest.  Usually, once someone makes it over 1-1.5 years, they will be less likely to default because they’ve made it over the hump and would not want to default so late into the loan where most of it is paid off.

Here’s a picture of my Lending Club dashboard:

Feel free to ask any specific questions about my Lending Club experience in the comments below.


Also, I’m considering a similar $10K experiment with Prosper.com.  I’d love to hear if anyone can share recent experiences they’ve had with Prosper (I know a lot of people had bad experiences 3-4 years ago with Prosper, but I haven’t seen a lot of bad stories in the past 2 years).


A few items for full disclosure:

1. If you sign up for LendingClub.com from this site, I get $25.  It’s not the purpose for writing the update (I would write the same article regardless of this income), but I want to be open about it.  So far I’ve made $275 in commissions this year.  If you’re one of the people that signed up after reading my results, I’d love to hear about your results!

2. While my personal results are currently good, there is still significant risk in this investment – as with any investment.  Keep in mind that my $10K investment is still only 1% of my overall investment portfolio, so this is still a relatively small personal investment.  I may go up to 2%, but probably not more.

27 Responses to Lending Club Update: May 2012

  1. Peter Renton says:

    These are excellent results for a nine month old account. Although I would suggest that the number is higher than 20-30% of loans over 30 days late going bad. It is more like 50-75% in my experience which would mean five or six of these late notes will default. That will drop your NAR probably 2-3% but I think you have an excellent chance of earning 12% returns long term.

    As for Prosper I have had an account there for almost two years now and I have nothing but good things to say about them. I am getting north of 15% in my returns there. Prosper 2.0 (July 2009 onwards) is a very different animal from Prosper 1.0 – I don’t know any investors who are unhappy with their results from Prosper 2.0.

    • Thanks for the feedback on Prosper. I had seen some great results in Lendstats, and this makes me more confident in jumping in with them.

      I’ve read your site off and on for about a year now and I really appreciate all the information you provide. When I sign up for Prosper, I’ll make sure to do it through your affiliate link.

  2. My return at Prosper is about 12.5%. I was pretty conservative at the beginning, but I’m taking on more risks now. I started with $1,000 and have been adding to it over the past 6 months. I’m up to about $6,500 now. Only one loan defaulted so far so I’m pretty happy with that. I like home improvement loan the best.
    Premier Investor service? I need to take a look at that post.

    • I had a similar experience. My current returns include my first $2000 in more conservative loans so I’m hoping as those payout and I reinvest in the loans in my lendstats filter that I see those higher interests offset the looming defaults to keep me closer to 15%.

      Are you planning to invest more, or are you set at $6500 for now?

  3. […] Brave New Life – Lending Club Update: May 2012 […]

  4. Dan B. says:

    Though you may personally luck out, I can assure you that much more than 20-30% of loans over 30 days late will end up defaulting. Peter’s estimate of 50-75% is way more accurate of an estimate regardless of what Lending Club says. Read the fine print where LC specifies how it counts loan recovery rates…………….as we wouldn’t want your less enlightened readers to actually believe that 20-30% number, would we?

    6 months from now you’re going to start getting an idea as to how you’re really doing. A year from now you’re going to be in the high single digits. You may think I’m full of crap now, but a year from now you will see that I’m right. Then again, you’re not going to remember I told you so. Peter may think that you have an excellent chance at 12% long term, but you really don’t & neither does he.

    Been with Lending Club since Oct 2009. Over 3500 notes purchased. Currently running 4 accounts with $170K+ total.

    • HI Dan,

      can i email you to talk about your expericence with lending club. i am contemplating starting a business but with collateral to protect the investments.

      investlike1percent AT gmail DOTCOM

    • Dan – With $170K invested, I think you have earned some authority in this so I definitely don’t consider you to be “full of crap.”

      I’ll tell you what – I think I will be at low double-digits, and you think I’ll get high single digits a year from now. So let’s set the over/under at 10%, and a year from now we’ll revisit this. I’ve set a calendar reminder so I don’t forget. :)

      As for the default rates, I mis-spoke in my original post so I’ve updated the stats to who a 50% default rate for payments 30-days late or worse (actually, it’s reported as 47%). But you also implied Lending Club has a questionable method to calculate the default rate and I’m not seeing that. They state:

      “How to read these graphs: of the loans in Grace Period in April 2011, 84% were partially or fully recovered by October 2011”

      and that seems reasonable to me. Can you expand more on why you think it’s worse.

    • virginia says:

      This is similar to my experience although I invested with prosper from 2008-2011 so it was during the economic downturn.

      I invested somewhat conservatively but I watched as my estimated returns went from 15% to -6%. It could have been the economy but I think people just don’t default right away on loans so your true returns get worse with time.

  5. is there liquidity,

    once you invest, are you commited to the life of that loan?


    • There are options to sell your individual loans in an open market (Folio), but I currently don’t use it and can’t comment on it’s quality.

      • AvidReader says:

        I have used the FolioFN to recover a few loans I made when I first openned my LendingClub account. I openned it and invested $1000 between 3 loans. All A-C Grade. I used some common sense investor logic and applied my knowledge to the individuals credit worthiness and purchased them. Once I had become knowledgable on the LC strategy I realised I made a grave error. After receiving my first repayment on each loan I sold them. All 3 loans sold within 4 hours. Because so many people mark up the notes they are selling I underpriced mine by about 20-30 cents. So minus the 1% trading fee and under $1 loss total I lost close to $10. Which I actually recovered from the interest I was paid. So I lost nothing.

        The point is, it’s really easy to achieve liquidity on your investments. If you’ve got more time, or are not willing to cut your losses, you can upsell them like 95% of everyone else using FolioFN. However, since I just wanted to have my cash to reinvest in smaller sums, I chose to take a hit.

  6. When you have a loan to default can you at lest right some of it off on your taxes?

  7. Dan B. says:

    Brave New Life………………….“How to read these graphs: of the loans in Grace Period in April 2011, 84% were partially or fully recovered by October 2011″

    As per your request………….Scenario, I owe you $100 that I’m planning on paying you back monthly. But then I fall behind on my payments & eventually stop paying entirely……………but then one day send you $5 when the mood strikes, by the above definition you have “partially” recovered, have you not? So you can accurately report this in a statistic such as the one above regarding in grace period. But in reality have I defaulted on this or not, considering that the $5 is the last you’ll ever get from me?

    You see it’s true. You can use numbers to tell any story you want. So what do I win if I’m correct about your returns a year from now? Please, anything but gratitude & admiration, unless you’ve figured out a way to monetize those sentiments. :)

    • Ahh, a betting man… I like it. I should warn you, I went 6 for 6 on my sports betting this weekend (it’s a hobby, the money isn’t large).

      Let me think on that wager a bit. I want to add some money into my account but that would skew the results higher in the short-term, which would affect your prediction negatively and mine positively. I’m thinking about setting up a second account for it, but then I have to deal with duplicate loans… I’m not sure how to get around that just yet, or whether I even care…

  8. Tim D. says:

    I’m about one year in with LC, with an account balance of $8,333. I started with $500 for the first month or so, then deposited $2,500 and have been adding $500 a month since. I’ve realized a return of just north of 14.5% so far, but am expecting a drop to near 10% within the next few months. My problem was making some bad decisions early on that are now coming back to bite me. I started buying primarily off the secondary market run by Foliofn, and the filters for notes there are minimal. I ended up mistakenly buying multiple shares of the same loans over a period of months, and didn’t notice it until two loans (I had two notes in one and three in the other) went past due. It looks like these and a few others (I have 369 notes) will ultimately default and cause me to take a large hit in one month. Since realizing my error, I’ve taken steps to prevent future errors of this nature. Even if I were to realize a long term return of 10%, I would be perfectly happy with my investment. When banks are offering 1% on CDs, how could I go wrong with LC? The secondary market at Foliofn may not be the best venue for purchasing notes, but it makes my LC investment relatively liquid if I ever needed quick access to my funds there, and investing with LC is a lot more fun (hands on) than handing my cash to a banker.

  9. Mark S says:

    BNL, That Nickel Steam Roller site is a great site for Lending Club statistics and portfolio review.

    I Clicked on “STATS” at the top and it takes you to a Lending Club summary of the stats. You can sort each column and then determine the lowest default rates for each searchable item on Lending Club. It’s interesting to look through each one and see how different filters effect default rates. Or it can be used to finetune your Lendstats filter or add certain things that don’t effect default rates to increase your pool of available loans.

    Dan, with your 4 accounts are they all in TAX-FREE accounts? Do you auto-re-invest your monthly proceeds? (or manual)
    Are all of the loans $25 or did you go with a higher minimum?

    I’ve been with Lending Club since December 2011 and my only complaint is the large amount of time I spend searching for loans. I have about 240 loans at this point at $25 each loan in a Taxable account ($6,000). I’m adding about $500 per month to the account, but it takes almost 2 weeks to fund the new loans each time. Usually my filters only leave me with about 3-5 new loans per day to choose from. From 240 loans I have 0 defaults, 1 Paid in Full and 1 Late Loan. My one late loan was an A grade loan too.

  10. Mark S says:

    BNL: Yes, I definitely was using your Lendstats filter (with a few of my own extra tweaks). One comment though: Is there a way to have Lendstats exclude loans you have already invested in? I stopped using it because I would have to manually cross check the loan numbers before I invested to make sure I wasn’t double investing in the same loan.

    Is there a way around this?

    • Mark –

      I don’t think Lendstats can detect duplicate loans for you directly since it’s just a database analyszer and isn’t tied into your specific account.

      Personally, my method is to use the same computer and browser each time I run the filter through Lendstats. So any link I’ve already clicked on (and presumably invested in) shows up a different color.

      There are holes in this method, for example if you clear your history. But I’ve found it very effective and time efficient, and have had no duplicate loans since implementing this approach.

      I could see other ways to automate this better, but since the time I spend works out to 5 minutes per week, and since I enjoy that time since it’s time reinvesting money that I earned, I’ve decided just to keep doing it manually. If I up my account so much that this method won’t keep up, I’d just increase my loans to $50/loan.

  11. Mike says:

    One of my readers sent me over here and I’m glad he did! I’ve just begun with Lending Club and I’m trying out Prosper next month. I wrote about LC here: http://livetheneweconomy.com/blog/2012/6/21/lending-club-initial-investment.html

    I’ll be taking a look through what you’ve done to gather some more strategy. Great post! Thanks!

  12. Todd Garth says:

    Wow! excellent results, I will probably try investing with Lending Club. I have been investing part of my salary in gold as it has been predicted that a record price for gold in the near future will rise by 26 per cent to $US 1,940 in the year to come.

  13. S Smith says:

    I have been with LC since 2009, starting with a few hundred dollars and slowly have been adding about $1000 on an annual basis–playing it nice and safe and slow. I reinvest the payments.
    It’s been an experiment and I have been very conservative in choosing the notes, opting for A-C grade notes. I currently have a total of 172 notes, 41 paid off in full, and 6 charged off. My investment return is 7.7%, which is in my goal range of 7-8%. So far I’ve been happy and now I’m going to try your filter strategy as well. Although I’ll probably balance it with my existing strategy to stay safe. I would love to get 10% returns.

    I also play with Prosper but on a much smaller scale because so many people have had bad experiences with Prosper. I have less than 20 loans on Prosper, and have had 3 paid in full and one charged off. I’m earning about 10% on Prosper. As you can see the % of charged off loans is higher, but I’ve still managed to get a better return. But psychologically I still remain more skeptical about Prosper, so I’m only putting in small amounts of $ once in a while. Prosper has much fewer available listings, and that makes me feel like I don’t get as many good choies for quality loans.

    • Prosper tends to be higher risk loans, but with higher returns. I’ve actually begun investing with Prosper, I just haven’t had time to write about it yet.

      Good luck with using my filter. I’ll be writing a quarterly update sometime next month, but right now my returns continue to remain at ~14.5% even though my default rate is much higher than yours.

      7.7% is actually really good for the A-C loans from what I’ve read. Are you using a filter, or just using the LC bulk loan feature?

  14. […] If you haven’t read it before it, and assuming this interests you, you might want to first read my initial investment strategy, as well as my previous quarterly reports. […]

Leave a reply

CommentLuv badge