Beating Broke

Personal Finance from the Broke Perspective

Lending Club 2Q2012 Update

By 16 Comments

Another three months have passed which means it’s time for another update on my Lending Club account.  If you’ve been following my LC updates, you know what this is all about.  If not, you can catch up by starting with the Calculating a Real Rate of Return on Lending Club post, followed by the first Lending Club Return Update and then Lending Club 1Q2012 Update.  If you’re interested in opening your own Lending Club Account, you can do so here.

Now that we’re all on the same page, let’s take a look at what happened this last quarter.

First Lending Club Delinquency

The biggest thing, I think, to note for this update is that I finally had my first (and second) delinquencies on loans.  The first, I sold.  I was lucky enough to be able to sell it for break-even on the remaining principle.  I lose out on the interest that it would have paid through to maturity, but if it went into collections, I likely would have lost more than that.  I should have paid a bit more attention, but I believe the first was a C grade loan.  The second, which just went into late status at the end of June, is a D grade loan.  I’m holding on to this one.  My reasoning behind holding on to it is three-fold.  First, and more importantly, is that the loan is showing as late, but it is also showing that the borrower has entered into a payment plan.  While that isn’t ideal, it does show a desire to pay it in full and avoid the collections process.  I’m giving the borrower the benefit of the doubt that they’ll be able to pay the loan off.  Second, the remaining balance on the loan, including interest, is $6.06.  If I lose that, it won’t break my portfolio, or my rate of return to any significant degree.  Third, and finally, I’m keeping it as a part of the experiment.  I’m curious to see how the process works, and how it will end up.  How it does end up will likely help me make decisions on what to do with any further late loans in the future.

Lending Club Returns Remain Above 13%

After it’s all said and done, the one late loan in the bunch could end up dropping the rate below 13%, but it hasn’t been written off yet.  If, however, it remains in a late, but paid, status, my rate is doing pretty well.  As of 7/4, my account is showing a NAR (Net Annualized Return) of 13.58%.

“My Net Annualized Return is at 13.58% on @lendingclub – @BeatingBroke”  <– Click to Tweet This

I’m still amazed by that rate of return.  Yes, I do realize that I’m likely having some luck so far.  Another factor might include the size of my portfolio.  It’s climbing, but it’s just barely over $500 total.  As the portfolio size grows, the likelihood of a written off loan grows with it.  The flip side of that, of course, is that the larger the portfolio gets, the more diversified I’ll be, and the less one written off loan will affect my rate.  One nice part of the size of the portfolio is that it’s nearing a self-sustainability mark.  Currently, the total monthly payments coming in is $23.67.  With that coming in each month, I could easily stop contributing to the account, and merely use the payments as the renewing funds for investment.  I don’t plan on doing that, but I certainly could.

Lending Club Account Dashboard
Lending Club Account Dashboard

Adjusted Lending Club Risk Ratios

Previously, I spoke about having adjusted the loans I was buying to be almost all C and D grade loans.  While I am not abandoning that idea, I’m adjusting it slightly to try and keep it slightly more balanced.  What I don’t want to happen is to find myself with ALL D grade loans.  The lower grade loans, while paying less in interest, are a lower risk.  I’m now trying to keep the portfolio to a pretty nice bell curve that centers somewhere between C and D.  One thing to keep in mind here is that it’s somewhat hard to find the A and B grade loans that have any return at all when you have to purchase the loans through the FolioFN trading platform, which tends to push the curve towards the D side anyways.

That’s it for this quarter’s update.  With a little luck, and some shrewd investing, I hope that next quarter’s update will be just as good!

Want to open your Lending Club account? Click here.

Do these updates add any value for you?  What would you like to see change in them?  What do you like?  And, what has your experience been like with Lending Club?

 

Weemba: Loans 2.0

By 11 Comments

The following post is sponsored, and I am being compensated to write it. That doesn’t change the fact that I’m doing a review, and it will be honest.

When I was first asked to do a review of Weemba, I’d never heard of it.  (See? Honesty!)  As any good reviewer will do, the first thing I did was try and figure out just what it was that I was to be reviewing.  I’ll extrapolate later on, but here’s how they put it in a recent press release.

Weemba revolutionizes the way borrowers and professional lenders connect via an online financial platform. Weemba provides, by means of unique proprietary methods and state-of-the-art safeguards, a virtual way for borrowers to post their needs and for lenders to then find those borrowers.  Protected by a nickname, borrowers post project profiles for lenders to review; interested lenders ask borrowers to access their private information, and if granted access, can contact borrowers directly. Weemba facilitates the borrower-lender interaction without interfering in the negotiation process.

It sounded a bit like a peer-to-peer solution, which, as I’m sure you’ve read, I’m a fan of, so I figured I’d give it a review.  (Doesn’t hurt that I was paid to do it too.)

Sign-Up

Signing up for Weemba was pretty easy.  In fact, if you so choose (I did.), you can sign up using your Facebook account.  You create a Community ID which will be used for their forums and support, and give them the necessary personal details.  If you’ve ever filled out a loan application, you know what I mean.  Name, address, SSN, etc.  There’s also the multiple-choice questions that they pull from your credit info (from Equifax) to verify you are who you say you are.  That’s it.  Fill in the info, verify, and you’re off.

Adding a Loan Project

Once you’ve completed the sign-up process, you’re taken directly to the loan project creation page.  You’re asked to choose between a personal and business loan type.  I chose personal, but they do have the system in place for both.  I advance through, and then get down to the nitty-gritty of the loan project.  Give it a name, tell the lenders what type of loan it is, how much you want, what amortization method you’d like (Installments, Balloon, or Lump Sum), the desired length of the loan, funding type (Full funding only or partial funding accepted), and then are given the option of adding your Equifax Credit Score.

I balked a bit here.  If you know how the credit score programs from any of the credit bureaus normally work, you’re usually signing up for a free trial to their credit score monitoring service that is followed by a paid service.  There wasn’t any mention of whether it really cost me anything or not, so I read the Terms and Conditions.  There, it does mention that some of their services do cost a monthly fee, but doesn’t mention any of the services by name, so I still couldn’t be sure.  Later, I looked in the FAQs and it does mention there that it’s “no cost”, but with no further details.  I don’t see any way around adding your credit score to a legit loan project, so if you’re adding one to seriously pursue a loan, you’ll need to do so.  I wasn’t going to publish the loan project, so I didn’t add the credit score.

Once you’ve gotten the credit score added, you get a chance to add details of the loan, some secure info (contact and some advanced qualifiers for their search engine), create a forum for your project, and then add an Avatar or videos to the loan project.  The avatar will be displayed in their search results, and on the rotator on their home page.  There’s also a “W-SEO” score added to the end.  From what I could tell, it looks to be a ranking of sorts based on how much info you filled out, and is dynamically updated after the loan is published with info on conversation, ratings, etc.

What I Think

For a company that claims to revolutionize the way “borrowers and professional lenders connect”, I saw a lack of any major revolutionary ideas.  Essentially, they act as a loan broker.  They do it online, so maybe that’s the revolutionary part?  I kind of thought that Lending Tree did that ages ago, no?  Or, maybe it’s the search combined with some decidedly social aspects?  I’ll give them that.  Sites like Lending Tree basically pull your info and then spit it out to some local lender that you’ve matched with, so giving the lenders the ability to search for some quality borrowers while giving the borrowers some social tools is a good step up.  I’m just not sure that it deserves the revolutionary PR jargon. They broker the loan, by facilitating the connection.  Once the connection is made, it’s handled privately between the borrower and the lender.

Overall, Weemba looks like a good service that will fill a need both on the borrower and lender side.  I’m a big fan of peer-to-peer because it gives the borrowers to make a case for themselves.  Something that Weemba does too.  I couldn’t find any information on who the lenders are, or if there’s a process for becoming a lender, so I’m assuming that it’s mostly institutions.  Still, a good service, that will allow borrowers to find some competitive offers for their lending business.

If you decide to give Weemba a try, here’s a few things I’d make sure to do to better your odds of finding a lender.

  • Be honest.  If there’s a story behind your debt, or the reason for the loan, share it.
  • Add a credit score.  I don’t know a lender that isn’t going to hesitate if the loan project doesn’t have a credit score.
  • Add a good avatar.  Even if it’s a picture of the car you want to buy.  A picture is going to help you. Same for video if it applies.
  • Answer Questions.  If a lender asks a question, or needs clarification, answer it promptly.

What do you think?  Would you give Weemba a try?  Why? Why not?

Are Personal Loans a Scam?

By 13 Comments

Consideration provided by Compare the Market

One of the reasons that I dislike payday loans so very much is because of the terribly high interest rates that the payday loan companies get away with charging.  Couple that with the high fees, and it doesn’t take a genius to see why most people who know anything about personal finance will agree with the “parasitic lending” tag that I throw at them.  By comparison, a personal loan isn’t much better.  Or is it?

Personal loans have some of the same high interest rates, after all.  Aren’t they just another way for the dastardly financial institutions to charge high rates, and rake in the high profits?  Well, yes and no.  Yes, they do charge high interest rates for personal loans, but there’s a very valid reason for that.  And, as a generality, the rates are not as high as those charged for the payday loans.  So, why do institutions charge higher rates for personal loans?  The answer is in the guarantee.

Guarantee?  What the heck am I talking about?  In a typical consumer loan, you’re buying something.  Instead of a personal loan, you get an auto loan, a mortgage, or a recreational vehicle loan.  In exchange for the loan money, the lender gets a claim on the title of the thing being bought.  If you default on the loan, the lender can repossess the car, house, or ATV that you bought with the money.  Because they have that collateral, the risk of losing money on the loan is decreased, and they can afford to give you a lower rate because of that decrease.

February 5, 2010 - PaperworkA personal loan, has no such collateral.  The only guarantee that you will pay the loan back is your signature.  Coincidentally, that’s why they will sometimes be called “signature loans”.  Because the lender cannot repossess your signature, the risk of default is raised.  And, because it is raised, they charge higher interest rates.

At this point, you’re probably asking yourself, “What’s the difference between a personal loan and a payday loan, then?”  Truthfully, there is very little different.  The one difference, and it’s one that makes a big difference, is that a personal loan is usually issued by a financial institution like a bank or credit union, whereas a payday loan is issued by that shady pawn shop across the street.  And, as a general rule, banks and credit unions are a bit more upstanding than the pawn shop.  In most cases, they have a good reason to treat you fairly.  They want your business.  Not just your next loan, but your savings too.  If they treat you poorly and charge outrageous rates, you’re likely to find somewhere else to put your money.  That pawn shop could care less.

Another difference, that bears mentioning, is that banks and credit unions will usually require that you have a good to excellent credit rating before giving you a personal loan.  For obvious reasons.  The risk is already higher without collateral, so they don’t want to risk their money lending it to people who have sub-average credit scores.  The pawn shop could care less.

Have you ever borrowed a personal loan from a bank or credit union?  From the pawn shop?

photo credit: nerdcoregirl