Lending Club Loan Investment Update
It has been quite a while since I last updated my Lending Club investments. While I am still buying new loans from time to time, I admit that I haven’t been very active in managing my investments. Basically, what I do now is log into my account once, or maybe twice a month and invest the cash into new loans. Since I only buy new loans with interest payments received, the growth of the portfolio, i.e., the number of new loans added to the account, is rather slow. Now, I have invested in a total of 226 loans, including both 36-month notes and the new, 5-year notes. Of the 226 loans:
- 206 loans are issued & current;
- 7 loans fully paid;
- 1 loan 16 – 30 days late;
- 5 loans 31 – 120 days late;
- 7 loans charged off.
Since March, the total number of Charged Off has more than double, from 3 to 7, while the total number of loans went from 172 to 226. Percentage wise, the charged-off rate is about 3.1%, which is still close to the average loan default rate based on Lending Club data. In dollar amount, the total loss is $206.22, or about 4.76%, which is much higher than the charged-off rate because there are two $50 loans among the charged-offs. With the high default rate (to me, it’s high) and loan loss, my net annualized return is pushed to 7.52%, significantly lower than the 9.64% average return claimed by Lending Club. However, my return calculation doesn’t include those notes that I bought on the secondary market before last September. If these loans are included, then the return should be higher, by how much I don’t know.
And of the 7 loans that went bad, one is Grade B loan, 4 are Grade C loan, and 2 are Grade D loan. In my Lending Club portfolio, the Grade C and D loans account for about 30% of the total investment, with the rest 70% Grade A and B loans. The shift to investing more in high grade loans (Grade A and B) from high-risk, high-return loans (Grade C and D) is mainly the result of a higher number of late and default loans. Initially, when I started investing in Lending Club loans in early 2009, I wasn’t very serious. All I wanted was high return. So I bought lots of low grades loans, mainly in the Grade C and D categories. However, as the portfolio grows bigger and bigger, I become more and more selective, hoping that the risk can be lowered (i.e., the number of late payments and defaults reduced) while still getting a reasonably good return. Now I intend to treat it as a tiny piece of my overall investment portfolio, in terms of dollar amount (read more about whether I can diversify Lending Club loans in my portfolio). Obviously, the change has an impact on the overall return because the higher the loan grade, the lower the return, or low risk, low return
BTW, the other day I made a suggestion to Lending Club about an alert function that it doesn’t have right now. In a previous discussion, I mentioned that I use automatic alert from banks and credit cards to let me know, for example, when the payment is not receive before due day to avoid fees. I think this idea can be applied to Lending Club loans as well. Right now, Lending Club only reports when loans are at least 16 days late. But I can receive an alert when a payment is not receive on the due day, like what credit card companies are doing with their alert, I think I may be able to take some actions, say trying to sell it on the secondary market. Now since I only check my account a couple of times a month, sometimes I feel it’s a little too late for me to take any action. Would this be a good idea?
If you are interested in Lending Club, you can get a $25 bonus when you open an account to start invest.
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