Learn More About Lending Club Credit Rating and Collection Process

I have been using Lending Club as an alternative investment vehicle for more than half a year now. At beginning, I could only invest in LC loans through their note trading platform because of the residency restrictions. Then since last month, I began to invest directly with Lending Club after moving from NJ to VA.

Currently, I have funded 103 notes with an average weighted rate of 12.97%. Overall, I am happy with the performance so far, though I also have some bad luck with a few notes. Two of them are late for a few months already and one is late for more than 16 days. The total value in these late loans is $112. No doubt that the losses will erode the profit. How much big of the hit isn’t clear yet since there’s still a slim probably that I may get some of the money back, though I am not very optimistic about the outcome.

Actually, the biggest problem of lending money to total strangers through social lending platform such as Lending Club and Prosper is the risk of losing money when the borrowers fail to live up to their obligations to pay. That’s the risk that I can try to minimize (see what I checked before investing in Lending Club loans) but can’t totally avoid because expected things, those you can’t by scrutinizing their credit file or employment history or income, do happen.

If you are also interested in investing through Lending Club, but have questions/concerns about the process, especially the risk involved and what LC is doing to reduce the lending risk before a loan is issued and recover your money after a  borrower failed to make payment, here’s an excellent webnair from Lending Club about LC credit rating and collection process. In the presentation, LC walks you through the process of screening each borrower and going after delinquent borrowers. At the end, a lot of real questions from concerned lenders are answered in the Q&A section.

Here are a couple of screenshots from the presentation to give you an idea what is covered in the webnair.

First, how Lending Club’s return compares with bank yields and credit card interest rates.

Lending Club Returns

Then LC explains what defines the grace period, late and defaults and what they will do when any of these happens.

Lending Club Defaults

Check out the webnair. It is worth your time if you are considering become a lender (see how you can get $25 bonus to start lending).

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5 Responses to “Learn More About Lending Club Credit Rating and Collection Process”

  1. Credit Card Chaser |  Oct 09, 2009 at 8:16 pm

    Interesting post, I have been thinking about making some loans on Lending Club for a while now. I am still not sure about the amount of time that I would have to invest as a lender to vet potential borrowers though (or even how successful my vetting process would be).

  2. Markus |  Oct 22, 2009 at 11:18 pm

    2% is about the charge off rate specified at LC. So you’re in the average. 2/103.