I'd love to hear your experience as a LENDER with LENDING CLUB
Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes
I'd love to hear your experience as a LENDER with LENDING CLUB
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Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9yI played it like a video game for a year or so. Was getting 25% ROI, according to their math.
- Pick a deal that I believe the borrower will make at least one payment on.
- Invest $25 in it.
- Wait for that one payment.
- Immediately sell it on the secondary market.
- Goto 1.
As an actual investing strategy, the $25 ones are the most liquid, meaning it doesn't scale up well. Everyone else was chasing [ interest rate + likelihood of full repayment ], I was just chasing "will they make 1 payment so I can flip it?" - giving me a bit of an edge.
To scale it up, you'd have to find some debt instruments that have a secondary market, are liquid, and are far larger than $25 a pop. Tell me if that reminds you of any industry that might have inspired my Lending Club strategy, that I might just know a thing or two about. :P
52 Replies
- Saint Augustine, FL · Member since 2016 · 26 posts · 17 votes9y
I've been messing around with Lending Club for a couple years now. Quite literally got started with the pocket change I had been collecting for years. I started out buying the straight forward $25 notes they offered through their main site. I tried various strategies, as far as which grades and purposes I'd focus on, but I haven't had much luck. I've taken a beating from a constant slew of defaults, but then again I'm only playing with pocket change. So far I've managed to keep my principle, and it is fun.
Over the past year or so I've switched to only buying notes through their partnership with Folio Investing. Here you can buy notes that other investors are selling for whatever reason. The thing I like about this platform is I can see a payment history. These are existing (performing) notes, at least the ones I look at, that give me some confidence of making a profit. These aren't guaranteed or anything, but my numbers do look better so far.
Either way, I like getting payments each month that I can turn around and repurchase more notes with.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
I played it like a video game for a year or so. Was getting 25% ROI, according to their math.
- Pick a deal that I believe the borrower will make at least one payment on.
- Invest $25 in it.
- Wait for that one payment.
- Immediately sell it on the secondary market.
- Goto 1.
As an actual investing strategy, the $25 ones are the most liquid, meaning it doesn't scale up well. Everyone else was chasing [ interest rate + likelihood of full repayment ], I was just chasing "will they make 1 payment so I can flip it?" - giving me a bit of an edge.
To scale it up, you'd have to find some debt instruments that have a secondary market, are liquid, and are far larger than $25 a pop. Tell me if that reminds you of any industry that might have inspired my Lending Club strategy, that I might just know a thing or two about. :P
Played around with it for 2.5 years now. Like @David Hurt mentioned...put in pocket change and have seen around 5.9% return on a blend of loans (focused more on A & B loans, with a minor blend of C & D) using the automatic investing option. No doubt the defaults piss me off, as you see even the A class "safer" loans suffering from defaults. But since the big scandal last year with the CEO, they are putatively touting better underwriting standards.
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@Keri Middaugh - I don't have first hand experience (I don't have to loose money to get experience) but I have friends who lost substantial money. I have tons of stories from my past life as merchant banker.I also did lot of crowdfunding of yesterday.
Good Luck Investing
Vivek
- Investor · Colorado Springs, CO · Member since 2015 · 252 posts · 131 votes9y
The thing to remember about Lending Club is that all of the loans are personal loans that are not secured by any asset. Everyone that posted above has shown that defaults are a huge part of the game even in the class A loans. Unless you are going to dabble with pocket change like @Jade S. and @David Hurt so defaults will not hurt you much you will have to put in a large amount of cash and get a very diverse set of loans. This will increase your chances of having the overall portfolio provide a profit even with defaults.
Good luck,
Allen Fletcher
- Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes9y
I invested about $12,500 between Prosper and Lending Club. It was a learning experience and if a friend asked me, I would not recommend it. Here's why:
1) Lots of defaults for the return. Even they tell you your average rate of return is going to be between 5% and 7% (or less). For the risk, there are better investments out there.
2) Year end reporting is a pain. If you use TurboTax, you can download your transactions and upload them to your return to be reported on Schedule D. If you don't, you've got to find a solution to enter each transaction on your tax return manually if you file electronically. If you don't, you can slap an attachment to your return. It's a pain.
3) You aren't liquid...and for the most part, you're stuck. I've been trying to get out for about 10 months now. Prosper used to allow Folio Invest to liquidate notes, they stopped doing that. I tried to get out and liquidate my account, but I'm stuck with 3 - $25 notes there until the borrowers default or they are paid off - in about another 4 years. I continue to try to liquidate my portfolio at Lending Club. I have one note that's current - listed for sale at a 30% discount, and I have 4 notes that are 31-120 days late - currently listed for sale at a 75% discount. It's like a bad dream that won't go away.
You are better served investing in a no-load mutual fund.
- 9yMark RobertsonPro MemberInvestor · Salisbury, NC · Member since 2014 · 314 posts · 386 votes
I used LendingRobot to "juice" my returns on my LendingClub test about 2 years ago. I pulled the plug on reinvesting about a year ago when my writes offs were over 50% of my interest. My estimated rate of return per LendingClub is down to 3.2%. LendingRobot estimated it over 8% when I signed up. This when the economy is rocking. Can you imagine how these same loans would do in a recession? Run away. Loan when you have some real collateral.
- Real Estate Professional · Levittown, NY · Member since 2016 · 38 posts · 10 votes9y
@Chris Mason After you bought the $25 note and waited for one payment, what price did you sell it on the secondary market for? On the Folio Investment site I see notes going from a 5% discount to a 50% up charge depending on the note.
I'd like to try your method, so if you don't mind giving me an idea of what $$$ amount you where able to sell the notes on the secondary market it would be appreciated. Thanks!
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @Daniel Guas:
@Chris Mason After you bought the $25 note and waited for one payment, what price did you sell it on the secondary market for? On the Folio Investment site I see notes going from a 5% discount to a 50% up charge depending on the note.
I'd like to try your method, so if you don't mind giving me an idea of what $$$ amount you where able to sell the notes on the secondary market it would be appreciated. Thanks!
It might go for $25.75. LC takes 100 basis points, but on the other hand I got one P&I payment before selling. You make very little per note. It's a volume game.
- Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes9y
Originally posted by @Account Closed:
For the risk, there are better investments out there.
I don't doubt you, but has this ever been quantified? What is the standard deviation on a Lending Club portfolio? Just curious.
@Mark Robertson makes a good point about the impact on defaults when an inevitable downturn in the economy happens. Both major platforms have a very limited track record, with most of that since the Great Recession. Make no mistake...these kinds of unsecured loans will get hit hard in that environment. One other factor to consider...some BIG money has been out there investing in these platforms, and getting prime choices of investable loans isn't like it was 3 or 4 years ago.
- Monument, CO · Member since 2017 · 6 posts · 10 votes9y
@Keri Middaugh I'll add my name to the list of those recommending you stay away. I started on the platform in January 2013 and the returns were not bad initially. However, I've seen consistent declines in returns as the defaults have increased. About 3 months ago I began the process of liquidating all my notes through Folio and I'm down to the crud at the bottom of the barrel that no one wants to buy. Most are in the 30-120 days late category so they'll likely be charged off in the next couple of months and I'll be able to wash my hands of it.
For reference, here are my annual returns based on total account value at the end of each year - pretty obvious trend downward (and now that I look at this I'm wondering why I didn't bail out sooner!):
Jan '13 to Jan '14 - 9.73%
Jan '14 to Jan '15 - 6.11%
Jan '15 to Jan '16 - 4.35%
Jan '16 to Jan '17 - (0.97%)
For what it's worth, I think the platform still makes sense but only for institutional investors. They get first pick of the notes and have the capital to diversify their portfolios pretty well. But for the average Joe/Jane investor, I can't see LC as a good investment.
- Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes9y
Originally posted by @Paul Allen:
Originally posted by @Account Closed:
For the risk, there are better investments out there.
I don't doubt you, but has this ever been quantified? What is the standard deviation on a Lending Club portfolio? Just curious.
https://www.lendingclub.com/info/statistics-performance.action
- Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes9y
Thanks for this input, everybody. I am looking for a passive way to invest a smallish amount of money (less than $20K) that is sitting in a self-directed IRA, waiting to be directed by myself to something useful. Ideally, I would lend it to someone locally, but in the meantime, I'm learning these other options. So, if Lending Club is not your favorite, what is?
- 9yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
I started investing in lendingclub about 3 to 4 years ago. At 1st I was very big on it, but slowly I've soured over time. Here are the things I've learned:
1) underwriting problems. Each year's loans have done slightly worse than the last due to more and more defaults. They made some adjustments to the lowest quality loans, but have done nothing for the higher-quality loans which are also experiencing the same problem. My returns have dipped from 8% to 7% to 6% and now 5.1%. At this point, I get a much better return from making hard money loans, and then if there is a default then it's backed by real estate, and if I chose my notes correctly I should at least get it all back. With these loans, when you default it's 100% loss.
2) it's tax inefficient. If you're investing in an IRA, this is not as big of a deal. But for me, it basically means I can only deduct about $2000 of losses each year and have to carry the rest forward. So I end up having to pay taxes on gains that I didn't actually make which is very painful.
The Real Estate Crowdfunding Review Hello,
I have done Lending Club for about 2 years now and I echo many of the opinions here. It is not as passive or as liquid as it is made out to be. If you want to maximize returns you have to constantly be reinvesting and vetting the loans (similar to screening rental applicants). You can auto invest but can lead to some shady picks.
I have been trying to get out for about 9 months now. I increase the discount on the loans every day and have been doing that for months. It resets when they make payments but it is just not liquid unless you want to take a loss or crush your roi. I started out at about 8-11% but since trying to get out it has gone down to ~3%. I am still trying to sell at discounts with little luck so it is either sell at a loss or wait 3-4 years for them to mature.
I loved it at first and have a mortgage/loan review back round so thought that I could do great but it has just been more work and less liquid then I could have ever imagined.
- Murrieta, CA · Member since 2017 · 14 posts · 2 votes9y
I have been investing in Prosper for 7 years now. I started off really small. Still am small but increased yearly contributions. Have a system I think that helps to reduce the amount of risk (within the parameters individuals give you). Not by any means perfect. In that time I have invested in hundreds of loans. Over 200 notes paid in full with only 28 charged off. What you need to remember is that no note is charged off within the first month with the full loan amount. Most often people stop paying somewhere within their terms so you get something back. Overall I have seen as high as 9.5% yearly return rate and as low as 5.3%. Average 6.5% over time. Not great but not bad. I personally am new to real estate investing and will be looking to move investments around a bit.
- Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes9y
I invested in lending club about 3 years ago and was getting 10%+ returns for a couple years, this year its down to ~6% or so. I have ~3k in there, and just use it to diversify some of my investments. There are better investments out there.
- Mechanical Engineer · Pinon Hills, CA · Member since 2015 · 8 posts · 3 votes9y
I invested $10,000 in 2013 with Lending Club and it started out making +9%. A lot of information on websites talk about the best filter to get the best borrowers and most of my information is 4 years old. I have been in cash for 9 months or so and my Adjusted Net Annualized Return is now at +7%. Being in cash of course is not helping my returns but I also am concerned about the borrowers heading south on me when the economy is bad. I originally invested in D,E,F and G loan grades and that was when I was at the +9% returns. I have read about some investors that are in the 13% range but statistically it cannot stay that high, your loans degrade over time even with the best borrowers.
My original filter was:
Loan Grade: D, E, F, G Inquiries = 0 DTI% <= 23% Open credit line >= 8 Public records = 0 Monthly income >= $3,000 Loan purpose: All except small business and vacations States: exclude CA 2 Yr Deliquencies = 0
All loans have been at $25 per loan and smarter people then I had suggested a minimum of $5000 because you have more loans spread out at $200 invested equals 8 loans versus $5000 equals 200 loans. With your risk spread out you have a fewer defaults. After about 3 years I started investing in Loan Grades A, B, C and some D and no E,F and G grades. My thinking is that better quality borrowers would result in fewer defaults when the economy tanks. I still have a tight filter and there has been some weeks when I could not loan to anyone because my filter was so tight no one qualified to my standards. I have since loosened the filters and got some borrowers until I placed the whole thing on hold about 9 months ago and do not loan to anyone. Loans are from 36 months to 60 months and backing out of Lending Club can take some time while your money is in cash unless you sell on Folio and take a loss. This is a consideration when making an investment in Lending Club. I've been in for a year and a half i think and I've been a bit disappointed. I started putting in $50/month and using the built in automated investing and it didn't turn out so great. Since my portfolio was small $800 or so any time a note would go into arrears it would tank my projected return. I switched to using Lending Robot to manage my portfolio which offers two benefits. 1) Since they aren't the lender they are able to analyze the loans on more data points then LC is and thus get you returns a bit higher. 2) since my portfolio is under 5k I don't pay a management fee (it's only 0.45%). I stopped investing simply because I got behind on bills but I still have reinvestment on. In my case what stinks is that the loans I purchased using LC's automated investing is returning like 2-3% (even though they projected 5-6%). Because these loans were performing so poorly, in order to achieve the desired 8% return Lending Robot had to invest in low quality high yielding loans. Only until last month has the amount of money managed under Lending Robot surpassed the loans that were bought under Lending Club so hopefully I get into some better quality notes. I'm up to $1600 total on like $1500 in cash invested over that time. Velocity of money is definitely LOW. My portfolio age is 9 months which should mean that I would see less past due payments but I think this is doubtful since so many of my new loans are higher risk. I knew going into it liquidity would be an issue but I didn't plan on selling any nor am I currently. I had planned on investing until I was getting $100 in payments each month but I'm not so sure right now. Basically I am in a holding pattern with it. I am making more money than it sitting in a bank and it keeps me from spending it. I have switched some money to investing in REITs via Robinhood since I will get the advantage of "fixed" income without the transaction costs and liquidity issues. Plus there is always the upside of price appreciation. If I was you I would do that for a similar if not better asset.
- Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes9y
Can you elaborate on that? Is Robinhood a REIT platform?
Yeah so Robinhood is a mobile first brokerage. FINRA certified. They are just like ETrade or any other investment brokerage except they have no fees for trading (most stocks). I think they have fees for withdraws from your account. They have a fee schedule but I've not paid any yet. Robinhood.io
- Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes9yI checked out lending club. Put 3k in to see how it would perform, putting it on auto invest at 40% A 30% B and 30% C. Compared to standard low cost etf's it's either inline or underperforming with higher risk. After some time on the loan they offer a refi which makes it a new note and shows paid off. Then you have the people who seem to default almost right away. So out of my 226 notes at about the year mark I have 37 fully paid off, 10 charged off, 1 in default and 6 30-120 days late. So I decided a few months ago to check the underwriting process. I applied for a 20k dollar just because loan. Submitted my social and stated my income... I was approved and shocked since I didn't send in a w-2, pay stub or bank statement and my employer was never contacted. Honestly not even sure if they pulled my credit. I called them up and said "hey I need the money when will I be approved" they said I just needed to e-sign the last document they sent and would get the money in 24-48 hours once a few more investors funded the rest of the loan. I asked about sending over financial docs and they said they have a algorithm and that be doing so is not needed. So that to me is a little scary the way they vet borrowers.
- Saint Augustine, FL · Member since 2016 · 26 posts · 17 votes9yYou guys are kind of depressing me. 😜 I've enjoyed the thread though.
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