Beating Broke

Personal Finance from the Broke Perspective

Lending Club Return Update 2Q13

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Lending Club is a peer-to-peer lending service.  People (like you and me) sign up for their site, and list a loan to be funded by investors (like you and me).  I like to think of it as replacing the bank in a loan with me.  (Except I’m not “too big to fail”.)  Of course, with that comes the same risks that the bank assumes when it issues a loan.  There’s a risk of late payments, missed payments, and default and it’s associated collection activities.  Luckily, Lending Club and Prosper (another p2p lending site) take care of most of the paperwork for the lenders (and borrowers).  This post is the second quarter update on my Lending Club account, and the return I’m getting on my money.

If you’d like to catch up a little, here’s links to the last few quarterly updates. (1Q13, 4Q12, 3Q12)

Beating Broke Lending Club Update

First Lending Club Default

I’ve been mentioning in the last several updates how lucky I’ve been that I haven’t had a loan go into default yet.  Well, that streak ended recently.  I knew it was only a matter of time before one of the notes defaulted, and one has.  Luckily, the loan that defaulted was a small one, and my portfolio has grown enough that the value of the default didn’t really affect the account too much.  The value of the defaulted loan is about 1% of my Lending Club portfolio.

There’s also a loan that is in the 31-120 days late category, that has the possibility of going to default, but at this point, the borrower is making attempts to pay the loan.  The reason it’s still in the late category at all is because the most recent payment was only a partial payment.  This loan is a larger loan than the defaulted one, so I may have to consider taking the loss on it and selling it at a discount to get it off my books.

Diligent Reinvestment

One of the things that I like most about Lending Club, and p2p lending as a whole, is that you get a relatively high churn on your money.  It’s not a buy-and-hold scenario, per se.  Yes, you invest in a note with the expectation of holding that note until it is fully paid off, but, as the payments come in monthly, that money is available for reinvestment.  In my 1Q13 update, I mentioned that I’d been a bit lazy in my reinvestment of those funds.  I was slightly better with that in the second quarter, and was able to keep most of the money pretty actively invested.

[Tweet “I knew it was only a matter of time before one of the notes defaulted, and one has.”]

Passive Income from Lending Club

Many people (myself included) call p2p investing a form of passive income.  While not strictly meeting the criteria in that it does still require some activity on the investors part, it’s pretty close.  Maybe we need to start defining passive income in terms of it’s passivity?  Something like levels.  Each level is achieved by it’s decile of passivity.  For instance, I think p2p investing could be somewhere around 90-95% passive.  That would make it a Level 9 Passive Income source.  With about 15 minutes of work a month, I’ve earned almost $60 in interest payments as of the end of June of 2013.  Last year, with the same amount of work, I earned $75.37 in interest payments.  If I had significantly more money, that amount would be larger, but I think that the time spent each month to earn it would be a bit larger as well.  Still, a pretty close to passive means of making some money.

Lending Club Return Update

We’ve talked about most of the rest of the account, but the title did say that it was a return update, right?  Yes.  In my 1Q13 update, I mentioned that the rate of return then was being shown as 14.63%.  As of 8/3/13, it’s being displayed as 14.08%.  The combination of the defaulted loan, and the payoff of a couple of higher interest paying notes is bringing the rate down.  I’ve been happy with the return I’ve been getting, but I truly think that a more reasonable expectation of return is somewhere in the 10-13% range.  I’ll take the 14%+ returns I’ve been getting though.

Click here to learn more about how I select my Lending Club investments.

Overall, I’ve been really happy with my results at Lending Club.  And, with the p2p lending industry as a whole issuing over 200 Million in loans in July, it would appear that there are plenty of other happy users too.

Have you gotten your feet wet in p2p lending?  Why or why not?

Lending Club Return Update 1Q13

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If this is the first of my Lending Club return updates that you’ve read, let me catch you up a bit.  It all started with a little Lending Club / Sharebuilder experiment.  It’s moved on past that, to an ongoing series here at Beating Broke where I share, on a quarterly basis, how the account is doing, the things I’ve done with the account recently, and the things that I might be thinking about trying over the next quarter.

How I invest in Lending Club

Because of where I live (North Dakota), I’m not able to directly invest in fresh loans.  I’m forced to use the FolioFN trading platform to buy (and occasionally sell) the notes that I’m investing in.  But, based on my returns, I don’t think I’ll be complaining anytime soon.  If you’d like to read more about how I select my Lending Club notes, you can read my post on that subject here.

Beating Broke Lending Club UpdateLazy Lending Club Investing

While I consider investing in peer-to-peer investing to be a nearly passive income source, it isn’t a pure passive income source.  What I mean by that is that it does require some active management in order to keep the money invested in loans, and not just sitting fallow in your account.  Without meaning to, I put that to the test this last quarter.  In February, I don’t even know if I logged into the account.  I certainly didn’t buy any new notes.  What that means is that for the better part of February, the money that I had coming in just sat in the cash account not doing a darn thing.  By the end of February, the cash account was nearly 10% of my Lending Club portfolio.  I invested all of that back into notes in March, but it was a lesson in needing to log in and check the account once in a while.

Lending Club Loan Analysis

Analysis might be a bit too strong of a word.  At the end of the quarter, I had invested in a total of 62 notes.  Of those 62 notes, 19 had been paid off, and there have been no written off loans.  There is one that has slipped into the delinquent status column, however, and is showing signs of ending up in the written off column. The balance on principle of the loan is less than 1% of my total portfolio.  I might be able to sell it, but it’s far enough delinquent that I’d have to sell it at a significant discount.  Honestly, I haven’t decided if I’ll do that or not.  I’d rather it just came back around and was paid off, but I’m more of a realist than that.  Maybe we’ll be talking about the written off loan effect at the end of next quarter.

Lending Club Return

So this is the part that everyone’s been reading for, right?  If you look back at the 4Q12 update, you’ll see that my rate of return (displayed as NAR in the account dashboard) was 14.48%.  I screwed up a bit and didn’t record the NAR displayed at the end of March.  As of 4/24/2013, it’s being displayed as 14.63.  That still includes the one delinquent loan, so it’s likely to go down some if that loan is sold at a significant discount, or if it is written off.  The spreadsheet I use to keep track of the numbers shows a a return of 15.86% and 13.26% (adjusted with inflation, which may or may not be necessary).

The cash flow in the account remains pretty good.  I had several loans paid off in the last quarter that was reinvested.  All told, the portfolio of active (principle remaining) loans grew by 2 over the first quarter.  The average amount of money churning back into the account each month is averaging well over $30 a month now allowing me to invest in one new note (at $25/each) each month and then another when the balance grows beyond $25 again.  Monthly interest received is teetering around the $10 a month line.  I think my next goal might be to get the interest income up to $25 a month.  That would be pretty sweet.  I’d be investing in a new note each month on just the interest along.  If I want to do that anytime soon, however, it means I’ll have to start putting money into the account again.  I haven’t put anything into it since November of last year, and I haven’t yet decided when I’ll start putting money into it again, but it will likely be soon.

Embracing Risk, and Increasing Returns

I suppose that somewhere along the way, here, I should mention risk.  The notes that I’m investing in all carry a risk of potential default.  If they all were to default, I’d lose every penny in my account.  The odds of that happening are pretty small.  But, the odds of having one or two loans default out of a couple hundred is significantly higher.  If you’re going to invest in Lending Club notes, or any investment, you need to know and understand the risks.  That’s your warning, and my disclaimer.

Now, take a minute and go look to see what your bank or credit union of choice pays on their savings account.  How about their best rate on a CD?  Now, even if I were to invest my portfolio into loans with a better credit rating (and, supposedly lesser risk), I could easily be making 6-9% if there weren’t any defaults.  It beats the heck out of the rates at my credit union.

One last disclaimer.  Please don’t put your liquid (or, emergency) savings into risky investments.  You need those readily available, and relatively risk free.  Even at a paltry 0.25% in a savings account, it’s in the best place.  Every other drop of savings is fair game though.  Your money needs to be working for you, not the bank.

If you think Lending Club (or Prosper) is something you want to give a look (maybe you’ll want to try an experiment like I have?) you can sign up at the following links: (Lending Club | Prosper)

Lending Club Update 4Q2012

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Now that the year has ended, and the new one has begun, it’s time for another Lending Club Update.  (Here’s the link to the 3Q2012 update if you care to read it.)

A couple of significant things happened in the final quarter of 2012.  My account maintained sustainability and I stopped contributing to the account (temporarily). I’ll go over each in turn, but the first is a milestone that I have been waiting for, while the second was something that just needed to happen because of my personal financial situation.

Lending Club Account Sustainability.

What defines sustainability?  For me, I’ve defined it as receiving in excess of $25 a month in principle and interest payments.  My account first reached that goal in June of 2012, and has maintained it since.  In August of 2012, it came close to dropping below that threshold, but managed to stay above.  It seems to have settled in at about $30 towards the end of the quarter, so hopefully as that money is reinvested, that number will continue to increase.

Beating Broke Lending Club Update

The entire quarter saw the interest payments that I received rise to a little over $9 a month.  I won’t likely get rich off of that, but it’s also not an insignificant amount on an account that has a total just under $800.  The Net Annualized Return (NAR) that’s being displayed on the account homepage is up .4% to 14.48%, a number I’m happy with.  There’s some argument over whether you should really use the NAR as a gauge of the account performance or not.  I won’t pretend to understand most of it. 🙂  What I do understand though is that having exact figures is less important to me for this experiment than it is to have a standard metric to measure my results by.  So long as the method of calculation remains the same, it should give me a general idea of how the account is doing.  (I’m open to learning more about how some of this is calculated.  Drop links in the comments!)

Contributions Stopped.

I stopped my contributions to the account in November.  If you’ve been reading along with the site, you’ll know that we ended up having some financial difficulties at the end of October.  As a result, much of the money that I was using to fund the account ended up getting transferred to my personal account to help dig ourselves out of that rut.  It isn’t any reflection on Lending Club, but a reflection on my finances and the need to help keep the ship afloat.  We’ve mostly righted the ship, now, so I’ll likely start putting some money back into this account sometime in the first or second quarter of 2013.

My Lending Club Portfolio

My portfolio remains strong.  I still haven’t had any defaults.  *knock on wood* While this experiment of sorts (it’s gone beyond that, I think) started in July of 2011, I’ve had my account at Lending Club since January of 2010.  That’s a pretty long stretch to go without a default of any sort.  You might recall that I sold a loan that had gone delinquent in the 2Q/3Q 2012 area.  I also had a second loan that had gone late, but it eventually was made current.  Currently, my portfolio has 42 loans in it.  All of them are current.  It also has 13 loans that have been paid in full.  Of those, perhaps about half have been paid off in advance.  That’s both good and bad.  I like that they’ve paid them off in advance because it seems to show that the borrowers are perhaps getting their finances together.  It’s bad, because I lose out on some income from interest when they pay them off early.  One of the risks of this income stream.

I’m still not able to directly invest in loans, and still have to invest through the FolioFN platform.  It’s still not ideal.  But, until my state (North Dakota) pulls their head out, and starts allowing it, that’s what I’m stuck with.  I’m not holding my breath.  I’m not going to complain too much, as I do seem to have found a pretty good method for selecting my Lending Club notes, and it seems to be working.

How are your investments starting off the new year?  How’s your Lending Club (or Prosper) account doing?