Lending Club Loan Composition
It has been nearly three months since I last updated my Lending Club loan portfolio, even though I wasn’t quiet during this period of time. In fact, I have already more than doubled the number of loans I own since I got into the peer-to-peer lending business in February. Right now, I have 54 notes in my portfolio, with two more pending (it seems that Lending Club takes more than one day to settle the purchases I made). The loan composition of my portfolio looks like this:
As you can see nearly three quarters of my loans are Grade C & D, with loan interest rates from 12.53% to 15.37%, with the rest in Grade B (10.95% to 12.21%) and E (15.68% to 16.95%). So far I don’t have any Grade A loan, nor do I have Grade F and G loans. The reason for avoiding Grade A loans, which theoretically have the least risk of default, is that I am in this to make money that I may not be able to make from other places, such as savings accounts. While 7.37% to 9.63% interest rates are good, I don’t feel the return is high enough. Since I am taking the risk to lend money to strangers, I want to get better returns. To me, there isn’t too much difference in terms of risk between lending money to a person with a 650 credit score and one with 750 score, as I mentioned in the how to evaluate Lending Club notes post. And Lending Club’s own statistics somehow showed there isn’t a very strong correlation between default rates and credit ratings. For example, since January 1, 2008, a total of 3,751 loans were issued and there were 123 defaults. Among loans that defaulted, 30 are Grade D loans, which is the highest number among all loan grades, followed by 25 Grade C defaults. These two groups of loans also make up the most of loans I own. But on the other hand, 22 Grade B loans defaulted while only 18 Grade E and 18 Grade F loans were 120+ days. How since 2009, there’s only 2 defaults among 1,358 loans issued, both Grade C loans.
For my own portfolio, so far I don’t have any late payment, but it could be because that all my loans are new. Six months or one year from now, things could be a little different though. That’s when late payment or even default starts to occur as I was told. Going forward, I plan to add some Grade A loans with interest rates at the high end to the mix to spread the overall risk a little bit further.
Anyway, with 54 loans currently in my lending portfolio, I am receiving more than $60 in payment every month, enough for me to make one ($50) or two (two $25) loans. One thing I have noticed recently is that notes are hardly sold at discount. At the beginning, I can easily find loans with markdowns for sale. Now, I sometimes had to pay a small premium (less than 1%) to buy the notes. Maybe it’s a sign that demands are up so sellers can charge a little more.
If you are interested in P2P lending through Lending Club, be sure to check out my previous post in which I went through the process of how to use Lending Club Note Trading Platform to invest. Besides, you can also get $25 Lending Club sign up bonus to become a lender.
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