Monday, December 15, 2008

Lending Club: What I'm Using for my Loan Porfolio Performance Benchmark

I've blogged extensively about Prosper peer-2-peer lending in 2006 and have learned a lot from my experiences with the lending site. With Prosper in its quiet period, I have already funded four loans with LendingClub. My first impression with LendingClub was tainted by my unfamiliarity with it. Prosper has a far better search mechanism and better presentation of listings, but i'm beginning to think that this is all the PROS associated with Prosper. I'm beginning to warm up to LendingClub.

I'm using LendingClub to reinvest earnings from my blog. Later this week, I will roll another $25 of blog earnings into LendingClub. At Prosper, my loan portfolio has had horrible performance. According to LendingStats, only 73% of my loans are / were performing loans and my estimated ROI is 6.4%. At such a low rate, I might have been better off just paying off my highest interest rate mortgage (5.875%) and reinvesting my previously used Prosper Loan searching / funding time in some other area.

I must admit, I was pretty aggressive with Prosper lending. At sometimes, I was down right careless. Since 2007, I have regrouped into a more conservative lending style. I'm now implementing my more conservative lending strategy from scratch at LendingClub. I believe I will do better at this site. My initial two reasons to believe this reside in the fact that I can minimize risk at LendingClub by risking only $25 per loan vice the Prosper minimum of $50. Also, it appears that the LendingClub's vetting of applicants is better than at Prosper's site.

Now to the point referenced in the subject line... I was reviewing CNBC and found a great story about Capital One delinquency rates (article). LendingClub lenders should keep their eyes and ears open to all credit card company news on delinquency / write-off rates. At Capital One, the company is reporting a write-off percentage rate of 6.98% and a 30 day delinquent rate of 4.7%. At first, one might say it makes great sense to use these numbers as a yard stick to measure their own LendingClub account performance. Don't rely on this early on. Wait until your loan portfolio matures before you start measuring up to this.

I plan on using the Capital One write-off rate as a yard stick going forward. If I don't beat Capital One after one year at lending, i'll likely quit. My next goal after beating Capital One will be to have a net return of 8.4%. We'll see how things work out.

You can use the button below if you want to set up an account at LendingClub and test your lending skills.

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3 comments:

Jeevers said...

I've been lending at Lending Club for a year. When I looked at both Prosper and LC, I ran from Prosper as fast as I could: too much sub prime, volatility and unhappy lenders in forums.

I agree LC does a better job vetting the borrowers: I've made 48 loans and only 1 is defaulted. I have 8 that are late, and I'm sure a few of those will go bad, but overall, I'm still making around 8 or 9% (I think).

Do you have a formula to calculate ROI on these sites?

Finance Junkie said...

It's a bit difficult to come up with a formula since each loan has different terms (start/end date as well as interest rate).

If you take total interest collected divided by amount invested you get a percentage that you can start to scale to an estimated APY / ROI... A very very rough way to approximate.

A real APY is also tough to calculate unless somebody stops lending. Calculating an APY when new loans are mixed in will give you an innacurate result since the newer loans haven't yet proven to be performers or a future delinquent / write-off.

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