My Lending Club Portfolio

I wasted little time in building up my Lending Club portfolio.

Only a few days in the peer-to-peer lending business, I already have, believe it or not, 20 loans (notes) in my portfolio :) 8 of them are $25 loans and the rest are $50 loans at a total value of $794.68. Right now, I don’t want to any loans that are greater than $50 because I want to spread the risk by making more small loans than a small number of large loans.

Lending Club portfolio

As I mentioned in my Lending Club review post, all the notes I own now were purchased through LC’s Note Trading Platform and all were bought at slight discount, which isn’t too bad.

As you see from the above picture, so far I have avoided high grade loans, grade A in particular. You probably wonder why no high grade loans. On one hand, the argument of investing in high grade loans is valid because high grade loans are assigned to borrowers with better credit scores, who are less likely to default or be late (Lending Club doesn’t its own homework when assigning a loan grade). Lending money to these more credit worthy borrowers is, therefore, less risky, at least on theory. On the other hand, I am into this to make money, good money even though at a small amount. Since high grade loans pay lower interests, buying A grade notes will not make me achieve my goal faster. Besides, as I said yesterday, people with low credit score won’t necessarily be late in making payments. When I first got my credit score in 2003, it wasn’t a very good score. If I use that score to get a loan on Lending Club, my loan won’t be a grade A either, but then I never missed any payment. So I am going to bet on lower grade loans to make more money ;)

Anyway, I should be receiving my first payment of a grand total $0.80 ($0.59 principle plus $0.21 interest) very soon. A small step, but a good one :)

BTW, you can now get $25 bonus when opening a Lending Club account. Check out the exclusive offer for this blog’s readers.

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9 Responses to “My Lending Club Portfolio”

  1. Cajun Fusion |  Feb 25, 2009 at 3:33 am

    I was comparing Lending Club to Prosper and came to your informative (on top of Lending Club article) site.

    I started lending on Prosper back in 2006 and had approximately similar loan choices as you have. Mostly C, some B and some D. Prosper issues 3 year loans. I had a chance to summarize the “investments” this year, a staggering 75% of them have defaulted and are in “charge off”, with recovery rate estimated to be 60%. That means the interests earned were not even enough to cover the loss in principle collections. Those people have bad credits for a reason.

  2. E. S. |  Feb 25, 2009 at 4:30 pm

    Like Cajun, I too took the bold move and invested a small amount in Prosper. However, my portfolio was grades “C” and above with the majority of the loans falling in the “B” category. 55% of my loans have charged off with another loan 2 months past due. Ironically, one of my strongest applicants, an “A” rated borrower, has defaulted. To sum it up, I have lost completely in this venture with no intention of ever going back. It seems there is no recourse at all if these loans default as Prosper does not have the resources nor does its partnered collection company too fight bankruptcy courts. I have lost all faith in this process and do not see a future in this unless the system is radically changed to give lenders more reassurance and options to collect atleast back their investment.

  3. Sun |  Feb 25, 2009 at 5:16 pm

    It’s true that one default will screw up all the money made before. I am not sure about Prosper, but Lending Club seems to have collection agencies to recover the money after a default because on their Rates & Fees page, they list attorney fees etc. so I assume that they do go after default borrowers. It’s a risky business, not doubt about it. I just hope it won’t happen to me.

  4. Cajun Fusion |  Feb 25, 2009 at 11:05 pm

    Prosper lets you choose among 3 collection agencies. I chose the one with highest recovery rate, 60%. I think my first charge-off occurred more than a year ago, but I have yet to see any of it getting recovered. My guess is that the borrowers declared bankruptcy and Prosper loans are low on payback seniority.

  5. Dylan |  Feb 27, 2009 at 9:59 am

    I was one of the early “movers” from Prosper to Lending Club. I saw the writing on the wall for Prosper, and like some of the other examples here, a high % of my loans went deadbeat. I’m still breaking even there though. Some differences:

    1) You can’t compare credit ratings or borrower quality. AA at prosper is A and Bs at Lending Club, and A B C at Prosper are equivalent to C D E F G at the Lending Club. Lending Club is more strict on FICO qualification (660 vs 520 at Prosper) and has a max DTI requirement (30% before, I think it’s lower now)

    2) Even though you’ll experience defaults at the Lending Club too (I have about 4% of my loans in default after a year), the collections effort are more obvious and transparent. You can see what the Lending Club is doing at any point by looking at your loan status details. I have made about 7% after defaults and fees after a year.