Friday, June 12, 2009

I am Suspending my Lending at Lending Club (Peer-2-Peer Lending)

Investing via peer-2-peer lending is a fun hobby that I have been doing at Lending Club for six months. Previously, I spent over two years investing at Prosper.

Over the last six months, I have made 37 loans at Lending Club. Lending Club states that my net annualized return has been 11.51%.

Two of my 37 loans have been paid off and now one is 16 days late in its FIRST payment. Here's my late loan.

I like how Lending Club provides a "collection history" on late loans. I found this collection history on my late loan:

Collection Log
6/11/09 (Thursday) Collections Agency contacted a borrowers relative
6/9/09 (Tuesday) Payment Failed
6/4/09 (Thursday) Attempted to collect payment
6/2/09 (Tuesday) Contacted a borrowers relative
6/2/09 (Tuesday) Contacted a borrowers relative
6/2/09 (Tuesday) Attempted to contact borrower (left voicemail)
6/2/09 (Tuesday) Contacted a borrowers coworker
6/1/09 (Monday) Attempted to contact borrower (left voicemail)
5/29/09 (Friday) Notified borrower of failed payment (e-mail)
5/29/09 (Friday) Attempted to contact borrower (left voicemail)
5/29/09 (Friday) Payment Failed

Was I just a victim of a Lending Club (Lendingclub) scam? The loan was for the maximum amount of $25k. If I was a Lending Club scammer, I would pursue a $25k loan.

I am now going on hiatus from investing in peer-2-peer loans at Lending Club. I will stay on hiatus until either:

(1.) The loan gets caught up on payments.
(2.) I accrue enough interest on my other loans to completely offset my initial $25 investment on the above delinquent loan.
(3.) I am able to sell the delinquent loan via the FolioFn Note Trading Platform. I have listed this loan for sale with an asking price of $19.09, a 25% discount to its face value of $25.45.

If the loan gets caught up on payments, I'm still going to attempt to sell the loan via the FolioFn Note Trading Platform. Pursuing the eventual sale allows me to clean up my Lending Club balance sheet of suspect loans and gain experience with using the FolioFn Note Trading Platform.

I'll keep you posted.

22 comments:

Anonymous said...

so a few things about your loan give me red flags.. i know hindsite is 20-20

1. He has such a good debt to income ratio, a great crdit score, and a great income, and it is verified, which is even more rare.. than why is he only getting a c rating loan? the quality of the loan seems to be a lot better.. something is fishy.. why the facts don't fit the results.

2. He had a deliqency a few years ago, and I never invest period.. in anyone who has a deliquency no matter what the excuse was.. and also I've never invested in C, because the risk there is too high.. Good luck to you!

Anonymous said...

I've had pretty "good luck" in my own lending club experiences. Also, in my own limited research, I've found mid-rated to be more risky. Believe it or not, I go A, B and RARE D's who look like they're making a consolidation. I believe they're committed to turning things around and it's been correct so far.

Anonymous said...

It's a shame one borrower can ruin something like this so easily. I'm sorry it's not working out currently and hope they turn it around.

I'm hoping to borrow in the near future to "refinance" my credit card debt that I've been trying to pay off for a year now. I've got no late payments and I pay more than the minimum whenever possible, but at 15% interest, I just can't seem to make much of a dent.

LendingClub vs. Prosper.com said...

I am surprised that Lending Club is not trying harder to collect $25.000.
Is anyone aware of the collection process if an account becomes late/delinquent?
I did not find anything on their site .....

M Sean said...

I'm on Prosper and Lending Club and one rule I have is don't lend to someone asking for the maximum. They may be looking to cash out before a bankruptcy.

I violated this rule once with a AA who had all the right numbers and he made about three payments.

HappyInvestor said...

I am lending club member. A couple of my loans have gone bad. But I am not alarmed. Such things have to be expected and lending club too informs by subtracting certain percentage from the interest earned towards bad loan. I have a few rules. 1. Max loan - $15000. 2. Limit your loans to people with certain credit score. 3. Dont go for category D and above. 4. Limit your amount to any loan to about half percentage of your investment. I am sure our return will be more than the paltry percentages offered by big bank CDs.

Anonymous said...

I have had several issues with Lending Club - fortunately I did this as an experiment and only started with $1,000 to invest - I spread this across 8 different loans with 1 A grade, 4 B grade, 2 C grade and 1 G grade - of these 3 have been (or soon will be) charged OFF!!!! - all 3 are B grade loans....I find it hard to believe that it is possible to have 3 of 4 B grade loans charged off! - needless to say my experiment failed...I will no longer be participating in the P2P loan business.

Good Luck with your "Loans"

Anonymous said...

It's a high risk investment. Just like the stock markets. If you read the terms it's no secret you are taking a risk with borrowers. Read all the facts and use your best judgement. Don't put all your eggs in one basket.

The Jester said...

The interest rate I get is 12.8 percent but my net annualized is 9.5 that's awesome compared to anything else you can get today, and i feel it's more dependable than other investments, My spread is pretty large i have over $2000 in it and every note I own is $25. spread the liability, I've had a few default but still have 9.5 percent overall

Anonymous said...

In reading the guy's request for the loan, the very poor grammar was a warning sign to me. He was a scammer. Possible ID theft.

Anonymous said...

I have now been at lending club for a year. I invest every month. I now have about 450 loans with 15 in some form of distress. I am currently earning 10.1%. I pick me own notes. I have some rules to live by. A few are make more than 30k a year. Month note less than 10% of gross salary. Never invest in moving. Avoid loans with "trying to make ends meet". Will consider happy moments such as wedding or improving a home. Do not just depend on the rating. Some A's are trash and some D,E,F are worth taking a look at.

Ryan said...

I appreciate your post and blog. I've been an active LC user for two years now and have only had one (a "C") of my 94 notes charged off. I am young and have a very high risk tolerance so I go after F's and G's almost exclusively. A few rules I stick to religiously: only "Approved" listings, DTI<15% with note factored in (about 2 months pay), total loan value <$15k (preferably <$8k depending on income) in addition to ZERO delinquencies. MOST IMPORTANTLY, I ONLY DO debt refinancing, avoid ALL listings concerning personal purchases (especially including weddings!!!) or home remodels

Once again I have only had one of 94 notes charged-off. Grading breakdown of my notes:


3 B
7 C
0 D
9 E
41 F
34 G


Full Disclosure: 9 Notes (2 E, 5 F, 2 G) have been LATE to make a payment at at least one point in time but are all current at present.

rythimjon@gmail.com

Aleksey Kulichenko said...

I have been investing with LendingClub for a while with 20 loans and only one showing signs of distress. I stay away from borrowers asking for the maximum amount. I try to watch out for borrowers trying to cash in before a bankruptcy. Those loans usually have stellar credit history, maximum loan amount and a higher APR. Good luck!

Anonymous said...

My name is Paul E. Tooley Sr and I had arranged for a small loan of $1400.00. It all got set up, I sent in the required information, they checked my bank, all was to begin, May 30. Then I get a message from them that they couldn't give me the loan and I'm wondering whether they know what they're doing; and that it isn't some sort of disingeniuos action to get ones bank routing # and get money dishonestly. Anyone had this happen with Lending Club? Should I inform my bank? O.K. I will, Thanks.
Paul E. Tooley Sr

Anonymous said...

Hmmm 9.64% returns the Lending Club homepage says.

What concerns me is that the figure 9.64% is the BEFORE taxes number. After taxes of 38% I'd end up with just under 6.0%. I could just go out and get me a Participating Whole Life Insurance Policy and my money would grow at right about that rate or higher. The guaranteed rate is about 5.86%. The non-guaranteed would be my dividends which I'd just use to by up Paid Up Additions which would make my account grow even bigger and faster. Seems like Lending Club is something to do to make a few bucks in your spare time. But why on earth would one want to spend time doing Lending Club when they can get guaranteed results all the while enjoying life doing something else or God forbid, work !

Anonymous said...

Just a note about the lending club process: they do say that there is a 3% default rate. If you take your 37 notes and multiply that by 3% you should get 1. Therefore your investment is in line with what they state. It is a risk that should be calculated into your investment projections.

Anonymous said...

I've been with Lending Club for 2 years and am completely happy (I have 200+ notes). Part of any investment strategy involves risk and I've had some notes default as well. However the default rate is lower than Lending Club's average and I'm still making far more than any savings or CD account.

Anonymous said...

I've invested in LC for over a year and I'm getting about 8% before taxes. I've had 3 defaults and that reduces my earnings to 6%,again, before taxes. So, let's say I end up with 4% after taxes. What would your current money market or treasuries pay before taxes? [and, by the way, money market funds may not be safe-some invest in European bonds and banks]

Safety of my money is an issue. So, I have two concerns with LC. The first is: Is this a pyramid scheme [ala Madoff]? and second how to minimize my losses due to defaults.

I've researched as best as I can and feel that LC is legit. But, I cannot be certain. So, that is a risk. I suspect it is low.

The second risk can be easily minimized by using good judgement [the comments above are a good start]. I will lose some money to defaults but, there is a tidy profit on the bottom line.

The key to both of these risks is to diversify. Diversify your overall holdings and have a well-balanced approach to investing [stocks, bonds, REITS, insurance, etc.] Also, diversify within LC. If you have a small sum to invest, then divide it into $25 loans. If you have a large sum, diversify as much as your patience and time will allow.

The person recommending life insurance as an investment might have an interesting investment. But, I haven't found a policy that pays anywhere near that much, without tracking to the stockmarket. And, that is a risk. But also, the investment is only as good as the insurance company remains solvent. I suspect that an insurance company paying very high interest rates may be on the edge of insolvency. My advice there is to do homework on the company compared to the NY Life rating.

Finally, LC offers investors a stablizing force to the stock market because it will not correlate to the ups and downs. [I suppose the downs might mean more defaults in LC...but, in general, one's overall portfolio is more stable with such an investment].

Best advice: The key to good investment is to: diversify, diversify, diversify!

Good luck to all!

Anonymous said...

Life insurance is tax efficient and has relatively higher rate of return. But, you don't see your principles and dividends until you are dead. It could be longer than 30 years. Longer term loans should have higher rates. LC notes are only for 3-5 years. 8-9% after cost is decent.

Anonymous said...

I applied for a $35,000 consolidation loan in July 2012 that was fully funded by 159 members. However, LendingClub is so disorganized and unprofessional that they could not get their act together and lost my income documents 4 times. I finally gave up and decided to pursue a loan with a different lending organization. I have had no problems and I am so happy I did not close the loan with Lending Club!

Anonymous said...

I just applied for a loan through lending club. I wish to consolidate credit and pay them off quicker. There are so many mixed reviews, my account says fully funded, they have not asked for verification of income. The loan amount is 15000. Should I be worried I gave them my bank info.

Anonymous said...

I'm a currently a borrower from LC, I borrowed 18,000 from LC, my grade was B, and my credit was around 650, after the loan now my credit is 758 after paying off all my credit cards I'm very happy and take pride on having a good credit, I see myself as a good investment since I have made my payments on time, and I'm considering becoming a invester after paying off my load, yeah there is a risk of people not paying there loans, but like any business anybody does there's always a risk, just chose the right loans.