Invest Directly with Lending Club
I have been quite active in investing with Lending Club since February. However, for months, I can only buy loans on the secondary market because of Lending Club’s residence restriction which prohibits residents of New Jersey from lending directly. Though I was able to buy some notes at discount early on, most of the notes I purchased recently all came with a markup, some times as much as 1.5%. I don’t mind paying a little premium to buy a good loan that will eventually earn me 10+% return, but the extra 1% will eat a big chunk of a 8+% Grad A loan. I’d love to lend directly so I can keep all the profit.
Now, as I am resident of Virginia, I can finally use Lending Club’s primary market to lend directly
I cashed out some loans last month to reduce the risk of my portfolio after two of my loans failed to make payments. The money from the sale has been sitting in my account idle for nearly a month because I was waiting to change my address so I don’t have to pay a premium to buy a loan. After I updated my address last night, I decided to put the money back into the market. Since I am eligible for direct lending, Lending Club’s LendingMatch tool is quite handy to help me find loans I want to fund.
Basically, LendingMatch screens Lending Club’s loan inventory and find notes that collectively meet my expected return. With LendingMatch, all I need to do is specify the amount of money I want to lend and the average interest rate I want to have, the tool will then pick up loans from different grades and show the distribution of loans and overall risk of the selection. For my investment amount of $500 and target rate of 12.35% (it’s just a number I picked without any specific ration why I want this rate), a total of 20 loans were chosen (it’s good that no $50 or more loan was selected) and the overall risk level is 0.29 out of 1. The risk is quite low in my opinion.
Before sending my order for processing, I went through the results (see how I screen Lending Club loans) and identified one loan that I considered as too risky and removed it from my order. For that particular loan, E2 grade loan with 16.70% interest rate, the borrower wants to get $18,000 to consolidate debt. What worries me is the borrower’s credit history, which shows he has 23 open credit lines out of a total of 57 and a revolving credit line utilization ratio of more than 66%. Though the month income is good (more than $6,000/month), the borrower appears to be quite active in seeking credit lines. That doesn’t make me feel very easy about lending to him. So eventually I removed that loan from my list and ordered only 19 loans.
I still have some money left in my account that I want to lend, but will wait until this order is cleared because I don’t want to fund more than one loan from the same borrower. This is another way to reduce risk.
BTW, if you are interested in becoming a lender but haven’t started yet, you get $25 bonus from Lending Club to begin lending.
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