The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: timmoney on October 29, 2014, 03:53:25 PM
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i hate to say it but i wont make another loan at lending club. if you browse notes you will now see the city the borrower lives in has now been replaced with just the first 3 digits of the zip code. i very often would google the city the borrower would come from and see what housing costs, whats the property tax on average and other information lending club didnt provide in an effort to paint as complete a picture as possible. i began lending club a year ago i have made 850 loans with no defaults as of yet but i do have 4 people on the cusp as i write.
if lending club is going to deny me all the information i can possibly obtain when deciding whether a borrower is loan worthy than from here on out i am no longer making loans at lending club. i hope others join me. lending club to me at least, just became a shady operation.
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Similar things have happened at Prosper. They slowly removed all ability to connect with borrowers at all. All that's left now is a hollow shell of the p2p lending promise. Large lenders have taken over and they don't really need small-time lenders anymore. I got out a while ago.
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what a shame. it was good while it lasted. im trying to email them to voice my concerns but i hit the link and nothng comes up. oh well. i'll ride out my loans and withdraw my money every month. i hope it was as good to you as it was to me
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It was an interesting experiment. In the end, making loans to strangers on the internet just isn't a viable business plan!
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i thought it was great! i did it much different than MMM though. i theorized that i wanted people who i thought were good bets to make the payments regardless of interest rate thinking compared to MMM i would outperform him based on the premise that i would have a default rate much lower and would be reinvesting more money and over time i would have better returns. in my first year i did 10.74%. i thought it was a great place for an income bearing investment. but i wont do it under the changes theyve made. im actually a little mad at them too. just seems one more time someone is making the game harder. i enjoyed it but i want out of the game now
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I have a Prime account and I just set my risk tolerance and then they auto invest it for me. I still get great returns.
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Obviously you are all on the better side of this coin then I am. But from a lending perspective I did not have any luck with them. When MMM posted the links way back he included a "in case your still in debt pay down mode" link for those of us earlier in our journey. I have a ridiculous amount of credit card debt so figured I would give it a try. They offered me 15K at 14.99%. My highest credit card at the time was 13.99 with the majority of my debt was at 11.99 or 7.24. So I of course declined; I did like the idea of a fixed payment instead of a revolving line but it did not work out for me at least.
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i really dont feel right investing with them anymore. if i was lending club and trying to encourage people to make loans i'd be trying to make more information available to them not less. it makes me think the whole operation is shady. i never went the automatic route. my thinking is if someones going to screw up my money let it be me.
that was my take from the 2008-9 financial collapse. since then i index very little of my money.i have a mutual fund that is run more like a hedge fund and have some in there because i like the manager and over time he outperforms the market and i have 5 stocks that i own and the rest i daytrade. its what im comfortable with.
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I have a Prime account and I just set my risk tolerance and then they auto invest it for me. I still get great returns.
Me too. I figure if we clear >8% we're happy, and right now it's at 10.05%. It's a novel bit of diversification.
Currently, our LC account is set to 'automated-investing'. So money coming in goes into new loans. At some point in our ER, when our cash gets lower than 1 year's living expenses, we'll turn off 'automated-investing' and start receiving the payments for supplemental income.
Out of 3000+ loans, 2800 are current, and 3 have been charged off. The rest are fully paid, being issued, or in grace period. A few are 30-120 days late. I'm comfortable with that.
I can't complain so far. Of course, this is just one of many baskets, so I'm not going to fill it all the way up.
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Lending club is a suckers play.
High expenses, low liquidity, high credit risk, no track record and limited upside.
My full thoughts...
http://www.milesdividendmd.com/sacred-cows/
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This is the kind of stuff that I hate. A few months ago, everyone is raving about Lending Club and everyone here is pushing it. Now, after I throw in some money, everyone says it sucks. Trust level = down.
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I've consistently gotten 10% returns over the last 5+ years, so I can't say that this is some kind of failed experiment. My account always has had over 800-900 loans, and I have mostly done it through automated investing. IMO I wouldn't say it's time to throw in the towel.
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Hi Tim,
There's a button on your keyboard called "Shift". Using it would make your posts a quite a bit easier for me (for one) to read.
Thanks,
Chris
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Obviously you are all on the better side of this coin then I am. But from a lending perspective I did not have any luck with them. When MMM posted the links way back he included a "in case your still in debt pay down mode" link for those of us earlier in our journey. I have a ridiculous amount of credit card debt so figured I would give it a try. They offered me 15K at 14.99%. My highest credit card at the time was 13.99 with the majority of my debt was at 11.99 or 7.24. So I of course declined; I did like the idea of a fixed payment instead of a revolving line but it did not work out for me at least.
My experience exactly.
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Obviously you are all on the better side of this coin then I am. But from a lending perspective I did not have any luck with them. When MMM posted the links way back he included a "in case your still in debt pay down mode" link for those of us earlier in our journey. I have a ridiculous amount of credit card debt so figured I would give it a try. They offered me 15K at 14.99%. My highest credit card at the time was 13.99 with the majority of my debt was at 11.99 or 7.24. So I of course declined; I did like the idea of a fixed payment instead of a revolving line but it did not work out for me at least.
My experience exactly.
That's kind of what I was thinking as a lender. Why would someone consolidate into a 19.99% loan, for instance? Are credit card rates really that high and are other lower rate options outside of Lending Club just not out there?
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On the one hand, actual yields from my 12-14% nominal loans have come out to 6%. It's not the stupid free lunch money some people hope it is.
On the other hand, 6% isn't shabby compared to more traditional forms of high yield right now.
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Obviously you are all on the better side of this coin then I am. But from a lending perspective I did not have any luck with them. When MMM posted the links way back he included a "in case your still in debt pay down mode" link for those of us earlier in our journey. I have a ridiculous amount of credit card debt so figured I would give it a try. They offered me 15K at 14.99%. My highest credit card at the time was 13.99 with the majority of my debt was at 11.99 or 7.24. So I of course declined; I did like the idea of a fixed payment instead of a revolving line but it did not work out for me at least.
My experience exactly.
That's kind of what I was thinking as a lender. Why would someone consolidate into a 19.99% loan, for instance? Are credit card rates really that high and are other lower rate options outside of Lending Club just not out there?
Yeah it seemed a bit odd to me too. If your in the default 29.99% credit card rates I'm guessing your consulting bankruptcy attorneys; not lending club. I guess some people use it to pay off smallish medical bills or a new HVAC system (or similar one time expense). But for pure consolidation/refinancing of debt I did not see where it was that beneficial.
Luckily one of my credit card banks actually worked with me and got me in a 60 month payoff at 1.99%. Unfortunately I still have 46 months to go, but at least there is a light at the end of the tunnel now!
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Hi Tim,
There's a button on your keyboard called "Shift". Using it would make your posts a quite a bit easier for me (for one) to read.
Thanks,
Chris
thts a gd 1! im thnkng tht pst r actlly bttr wtht th shft ky.
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I need to look into this Lending Club thing a bit more. Some of you have posted that you have made 10% consistently over the last 5 years. That is a super high return rate and would probably equate to average s and p returns of 13%.
Is that 6 to 10% after all the fees?
I really like the idea of helping the little guy and myself simultaneously while screwing the banks.
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I'm not an expert in consumer debt and I don't want to be. Thus, I don't think I can make better (emotional decisions) than any other person or Lending Club itself by hand selecting notes. If you are operating on 'hunches' that some cities are better than others I think it's a poor strategy. If however, you have done deep analysis on certain locals which are proven to out-perform other areas than that's another thing (But is that really diversification?) If you do some research there are services that can in theory increase your expected returns. I'm earning 14% in 2014 as calculated with XIRR - 12% using Lending Club's assumptions. Age is around 10 months so this should fall a bit, but I expect to still be around 10%. I'm happy with that and continue to reinvest P & I.
This change is all about privacy concerns and it makes sense to me. It is far from anything that would make me consider a move away from p2p or "marketplace lending". For all we know, in 5 years we won't be hand selecting notes to begin with - it will simply be a fund full of notes with associated interest rates.
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My lending club account is at about 11% after fees and about 8% real return after inflation and taxes. I've used filters to reduce my risk in the long run, but these notes can only be obtained within 3 minutes of new notes beig posted. I don't have time to check each one. I gut go for it. I would prefer to lend to government employees, but that isn't always an option. Generally, I avoid sales jobs though. Those are hardest hit in a downturn.
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i hate to say it but i wont make another loan at lending club. if you browse notes you will now see the city the borrower lives in has now been replaced with just the first 3 digits of the zip code.
If that's your main reason for hating lending club, it ain't too smart... Google the first three numbers of your own zip and see if you don't come up with something in your own neighborhood... they haven't taken any info away from you.
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i hate to say it but i wont make another loan at lending club. if you browse notes you will now see the city the borrower lives in has now been replaced with just the first 3 digits of the zip code.
If that's your main reason for hating lending club, it ain't too smart... Google the first three numbers of your own zip and see if you don't come up with something in your own neighborhood... they haven't taken any info away from you.
Oh yea because 07019 and 07021 are SO similar.
One is slum of the earth the other one is old old money.
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I still don't see how zip code is relevant to this... I don't give a shit where they live as long as they pay back their loans, and I am getting about 8-10 percent returns. I think that's pretty good, it's above where I thought I'd be with this investment, and as an investor I'm pretty happy. I'd avoid New Jersey regardless. I was born in East Orange, by the way. Still retiring early.
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Agreed, I think the people who search into each note extensively are really wasting time. I don't think it will increase your returns substantially for the amount of time it will take. You might squeak out a percent or two more at best. Scrutinizing zip code is a bit much for me. I've had many loans over the years that looked like absolute crap for a while that turn out fine. Come up with a good filter for automated investing (there are many examples online), and just set it and forget it. I check in maybe once every few days, and am more than happy with the returns for a truly passive investment. Here is a basic filter that I use that has worked well for me:
Loans = B-G (allocation set to invest in more b/c/d notes)
Monthly Income = 4000-20000
Loan Term = 36 Month
Loan Purpose = Refinance CC + Consolidate Debt
Inquiries in the last 6 mo = 0
This is a relatively new investment vehicle, so there's always a possibility that this industry could implode rather quickly, which I why I have never investment anything more than 5-10% of my investment funds here. Don't risk what you can't stomach losing!
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Just as an FYI, the 60 month loans usually yield an extra 1-2% adjusted.
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This is true, I just personally stay away from them out of extreme caution. Something about having the loan locked up that long doesn't sit well with me.
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nice to hear everyones take. i like to hear different perspectives. for me i loved it. inn theory its high risk but i think with selectivity it wasnt as risky as it appeared. i put a lot weight on credit scores- my rationale was if someone has a high credit score they probably take their finances pretty seriously. i also looked for loans where payment would be about 5% of gross income.maybe a little more depending on how the other factors fit in as well as rate of interest. i wanted to be paid for taking risk. also i would look for people who's jobs i thought would be there if the world falls apart again such as doctors, teachers, nurses, civil service workers, etc. i never lent to "owner" or "president" or anything that i didnt understand. everyone loves to sound important so if they gave a crazy title or were trying to inflate their own i stayed away. i was very happy with it. the zip code thing to me removes a lot of info away. i would google apartment or housing costs based on where people lived, property taxes etc. it would only take a few minutes to get the info i wanted and it was interesting reading about some of the areas. i got a kick out of it. now i dont trust them. the argument they want to protect the borrower is total bull shit. for one even the smallest cities on here have thousands of people in them who the hell can pinpoint exactly who's borrowing. second they should be protecting the LENDERS. without lenders there is no investment club. i think they should be providing more info to lenders not less. why not the age of the borrower? why not marital status? if you went to a bank theyd require this information. being that as a lender i am the bank i think i should know as much as possible. as the lender it should be about me. its my money at risk, not theirs.
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I have consistently made just under 10% on Prosper for several years. Like any investment, you have to put in the time to make sure you are not chasing returns and understand the risks.
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Did you make 10% after taxes?
A fundamental point is that these low credit score, high-risk borrowers are likely to go bust at the exact same time the stock market does.
So a 10% return, In addition to being tax inefficient, both underperformed the broad stock market, and is likely to default at the exact same time your stocks crash. (So no diversification benefit. )
The cherry on top is the 1% expense ratio (compared to .05% for an S & P fund)
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I'm on my way out. For a while, I was still reinvesting, but only in 36 month loans so I didn't extend the time until we are out completely. I'd withdraw occasionally if I went for a while without finding enough loans (which happened often). Now, I'm withdrawing everything. My RoR is currently 12.17%, and projected to be just over 9% with their default Magic 8 Ball formula, which isn't bad. No idea what the tax picture makes that look like. But that return has been dropping, and likely will continue to do so.
It's not bad money, but it got super annoying have to log on at the moment new loans were released and feeling like, if I waited to consider a loan for even 30 seconds, I'd lose it. I felt very pushed to make rush decisions.
I never put much in ($5000 initial investment, I believe, and then just reinvestment of payments), and I considered it play money. I don't think it was a total bust, but I'm doing playing and ready to find a new game.
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Did you make 10% after taxes?
A fundamental point is that these low credit score, high-risk borrowers are likely to go bust at the exact same time the stock market does.
So a 10% return, In addition to being tax inefficient, both underperformed the broad stock market, and is likely to default at the exact same time your stocks crash. (So no diversification benefit. )
The cherry on top is the 1% expense ratio (compared to .05% for an S & P fund)
Not sure it correlates with the stock market that much - stock market crashed -37% in 2008, while lending club loan returns were at -0.27%.
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Agreed - I do nit believe it correlates with the market. Simon Cunningham wrote that this asset class never lost money. I play with money that I would have otherwise kept in cash or muni bonds. I still prefer the stock market in the long run
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Did you make 10% after taxes?
A fundamental point is that these low credit score, high-risk borrowers are likely to go bust at the exact same time the stock market does.
So a 10% return, In addition to being tax inefficient, both underperformed the broad stock market, and is likely to default at the exact same time your stocks crash. (So no diversification benefit. )
The cherry on top is the 1% expense ratio (compared to .05% for an S & P fund)
Not sure it correlates with the stock market that much - stock market crashed -37% in 2008, while lending club loan returns were at -0.27%.
Please share the source for your claim. Is that all lending club returns or the high risk pool that pays a coupon of 10%?
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Did you make 10% after taxes?
A fundamental point is that these low credit score, high-risk borrowers are likely to go bust at the exact same time the stock market does.
So a 10% return, In addition to being tax inefficient, both underperformed the broad stock market, and is likely to default at the exact same time your stocks crash. (So no diversification benefit. )
The cherry on top is the 1% expense ratio (compared to .05% for an S & P fund)
Not sure it correlates with the stock market that much - stock market crashed -37% in 2008, while lending club loan returns were at -0.27%.
Please share the source for your claim. Is that all lending club returns or the high risk pool that pays a coupon of 10%?
that is the ROI of all loans issued in 2008. It really isn't my claim, but just what it says on nickel steamroller:
https://www.nickelsteamroller.com/#!/
If you know (or anyone else) knows of any other sources that say something else, please post. Not sure how ROI on loans issued in 2008 correlates to actual 2008 returns though, but surely the return is several orders of magnitude better than -37%.
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To say that the total loss for all of lending club loans tells us anything about the high credit risk loans is a stretch, to say the least.
That is like saying that since an investment grade bond fund didn't collapse in 2008, high yield bonds must have done okay,too.
This is not true... (I used a total bond market fund as I could not find a total corporate bond fund that covered the period in question....)
http://www.portfoliovisualizer.com/backtest-portfolio?s=y&allocation1_1=100&showYield=false&symbol1=vwehx&symbol2=vbiix&annualOperation=0&endYear=2013&initialAmount=10000&allocation2_2=100&annualAdjustment=0&startYear=1985
And keep in mind that a high risk individual likely has a much higher risk of default than a high risk corporation, in general.
The real problem, of course, is that since lending club loans are illiquid they are not marked to market, so there is no way of accurately measuring what happened to their value in 2007/8. I'd be willing to wager that you would have taken a severe haircut on the secondary market had you needed to liquidate your position in 2008. (my guess is that because of their higher credit risk the carnage was worse than in the corporate high yield market.)
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To say that the total loss for all of lending club loans tells us anything about the high credit risk loans is a stretch, to say the least.
That is like saying that since an investment grade bond fund didn't collapse in 2008, high yield bonds must have done okay,too.
This is not true... (I used a total bond market fund as I could not find a total corporate bond fund that covered the period in question....)
http://www.portfoliovisualizer.com/backtest-portfolio?s=y&allocation1_1=100&showYield=false&symbol1=vwehx&symbol2=vbiix&annualOperation=0&endYear=2013&initialAmount=10000&allocation2_2=100&annualAdjustment=0&startYear=1985
And keep in mind that a high risk individual likely has a much higher risk of default than a high risk corporation, in general.
The real problem, of course, is that since lending club loans are illiquid they are not marked to market, so there is no way of accurately measuring what happened to their value in 2007/8. I'd be willing to wager that you would have taken a severe haircut on the secondary market had you needed to liquidate your position in 2008. (my guess is that because of their higher credit risk the carnage was worse than in the corporate high yield market.)
What makes things more interesting for future comparisons is that a few groups created P2p loan mutual fund type products that could be liquidated a lot easier. In my case, I threw in about 0.5% of my portfolio (just a very small portion of my play money), but even then, I'm thinking to pull out as the loan payments come in. Just think their are too many better places to put that money to work at.
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Maybe I'm just too trusting, but I use automated investing with Lending Club and I think it's great. You are paying the company a fee to research the loans for you - doing it yourself is probably a major time suck, and not worth the effort. Employees of the company consistantly give it fantastic reviews. They love the company's ethic. I like the fact that they reserved some shares in the IPO for their individual lenders. I whole-heartedly support this company based on what I've read and the returns I've received over the last 1.5 years. With automated investing you never have cash sitting around doing nothing, and you don't have to rush to try and invest your cash as quickly as possible to hope you get the loans you so carefully researched.
I've seen other threads on here poo-pooing lending club because "I'm not making 20% returns, I'm only make 13% and the stock market was up twice that last year!" It's called diversification - I feel like folks who joined up expecting 20% returns really didn't research the company or the concept, nor did they have realistic expectations.
Sorry this is kind of a rant, but I'm sick of the "get rich quick/game playing folks" trashing a solid company. And no, I don't work for them. I just like the concept and the diversification it provides.
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Maybe I'm just too trusting, but I use automated investing with Lending Club and I think it's great. You are paying the company a fee to research the loans for you - doing it yourself is probably a major time suck, and not worth the effort. Employees of the company consistantly give it fantastic reviews. They love the company's ethic. I like the fact that they reserved some shares in the IPO for their individual lenders. I whole-heartedly support this company based on what I've read and the returns I've received over the last 1.5 years. With automated investing you never have cash sitting around doing nothing, and you don't have to rush to try and invest your cash as quickly as possible to hope you get the loans you so carefully researched.
I've seen other threads on here poo-pooing lending club because "I'm not making 20% returns, I'm only make 13% and the stock market was up twice that last year!" It's called diversification - I feel like folks who joined up expecting 20% returns really didn't research the company or the concept, nor did they have realistic expectations.
Sorry this is kind of a rant, but I'm sick of the "get rich quick/game playing folks" trashing a solid company. And no, I don't work for them. I just like the concept and the diversification it provides.
The criticism of lending club is not that it does not play into the "get rich quick game."
It's that it is a poor diversifier for equities, it has high fees, and it is extremely tax inefficient.
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Maybe I'm just too trusting, but I use automated investing with Lending Club and I think it's great. You are paying the company a fee to research the loans for you - doing it yourself is probably a major time suck, and not worth the effort. Employees of the company consistantly give it fantastic reviews. They love the company's ethic. I like the fact that they reserved some shares in the IPO for their individual lenders. I whole-heartedly support this company based on what I've read and the returns I've received over the last 1.5 years. With automated investing you never have cash sitting around doing nothing, and you don't have to rush to try and invest your cash as quickly as possible to hope you get the loans you so carefully researched.
I've seen other threads on here poo-pooing lending club because "I'm not making 20% returns, I'm only make 13% and the stock market was up twice that last year!" It's called diversification - I feel like folks who joined up expecting 20% returns really didn't research the company or the concept, nor did they have realistic expectations.
Sorry this is kind of a rant, but I'm sick of the "get rich quick/game playing folks" trashing a solid company. And no, I don't work for them. I just like the concept and the diversification it provides.
The criticism of lending club is not that it does not play into the "get rich quick game."
It's that it is a poor diversifier for equities, it has high fees, and it is extremely tax inefficient.
AND, that they are changing the rules to make it harder to pick good loans, as noted in the OP.
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I've no major issue with Lending Club and like the diversification. But it's like 2% of my overall portfolio. Better than plunking cash into a savings account.
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I tried it with $1,000. I thought it would be enough to 'test' it but not so much I was out a lot.
I decided not to do anymore. Not only due to the issues posted here, but I didn't want to automatically invest. I didn't google lots of additional information about the loans but I did look at the job title, the loan purpose, class, etc. Manually investing was really painful. It took me over a month logging into the site daily to full invest.
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i hate to say it but i wont make another loan at lending club. if you browse notes you will now see the city the borrower lives in has now been replaced with just the first 3 digits of the zip code. i very often would google the city the borrower would come from and see what housing costs, whats the property tax on average and other information lending club didnt provide in an effort to paint as complete a picture as possible. i began lending club a year ago i have made 850 loans with no defaults as of yet but i do have 4 people on the cusp as i write.
if lending club is going to deny me all the information i can possibly obtain when deciding whether a borrower is loan worthy than from here on out i am no longer making loans at lending club. i hope others join me. lending club to me at least, just became a shady operation.
Bolded part says it all. It's working for you, and working well. Sounds like you're letting your emotions get the best of you. The numbers don't lie.
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I would argue that jumping in on lending club in the first place is letting emotions get the best of you. Lending club simply does not pay you commensurate with the risk that you take.
It is possible to have good results with an unwise plan with hidden risks. Good results are simply not the same as good tactics.
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I started LC because I didn't know what I was doing (it's currently at ~50% of my invested assets, but I'm not contributing so it'll drop to a small amount in a year or so). I also wanted to invest in something that at least met inflation and I felt like I had some control over. I did it for the experience, and while it's done well enough (~12% after fees and before inflation, ~8% after taxes and inflation), it's not the best place to put my cash. It is, however, an EXCELLENT place to learn about compound interest first hand in a semi-controlled environment. You can SEE the compounding at work. One month you add a couple loans, the next month you add a couple +1, and so on. You can see the income building up. I put in $2350 and it's not almost $2500 about a year in (I did stagger my contributions, it wasn't all at once). As before, I don't intend to put more in, and I will end up taking the money out in the next year or two. It was helpful in teaching me investing on a micro level and giving me the confidence upon finding MMM to read and take to heart the message within and begin index investing (indexes are at about $2350 having put in $2200). LC is very much junk bond investing.
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LC is very much junk bond investing.
I see the Junk bond comment brought up quite a bit, but I'm not sure that is a correct statement and it seems like if you see it somewhere it often gets repeated without truly understanding. Junk bonds are corporate debt, not consumer debt. Sure these rates reach high and FICOs vary, but the average FICO on LC is 700. People define prime borrowers differently, so if this isn't "prime" it seems like it is close. Can we really compare this to junk bond investing? I'm wondering.
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You're right that junk bonds are an imperfect comparison.The problem is that junk bonds are almost always much, much safer than lending club loans.
Junk bonds are corporate debt instruments for companies whose credit rating is not investment grade. But a non-investment-grade rated corporation almost assuredly has much more in the way of collateral and assets than an indebted person, so even if the company defaults, bondholders get something in bankruptcy liquidation.
Contrast that to a consumer lender who loses his job and stops paying back his lending club loan. In that case all principle is lost.
And if you think that people with loans at 12% have Fico scores of 700, I would challenge you to provide the evidence.
You get more coupon from lending club loans precisely because it's borrowers have much much more credit risk.The problem is that you don't get paid in proportion to the extra risk you're taking on.
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And if you think that people with loans at 12% have Fico scores of 700, I would challenge you to provide the evidence.
A quick analysis on the historical Lending Club data does in fact show that there are borrowers with 700+ who are paying at least 12% (Some of them actually higher) Anyway, I don't think there is any chance I'll convince you that it isn't as risky as many believe it to be. Plus, you ultimately determine the risk you're willing to take when you decide to fund A-G loans.
It's just frustrating when blanket statements are made that people state as fact. Banks have been making money this way for years. Educating yourself is extremely important if someone is looking to add p2p lending to their portfolio. It is evidenced in this thread. $1000 is simply not enough to be fully diversified.
I don't like to compare it to Junk bonds, but glancing at vanguards high yield corporate fund - there was a significant loss in 2008. Lending Club notes overall lost -3.44% in 2007 and -.27% in 2008 as mentioned earlier. If you invested more conservatively you would have ended up even better. Say what you will about it still being early in their history, but I'd argue they have gotten better at underwriting since then. Time will be the true test of peer to peer lending.
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And if you think that people with loans at 12% have Fico scores of 700, I would challenge you to provide the evidence.
A quick analysis on the historical Lending Club data does in fact show that there are borrowers with 700+ who are paying at least 12% (Some of them actually higher) Anyway, I don't think there is any chance I'll convince you that it isn't as risky as many believe it to be. Plus, you ultimately determine the risk you're willing to take when you decide to fund A-G loans.
It's just frustrating when blanket statements are made that people state as fact. Banks have been making money this way for years. Educating yourself is extremely important if someone is looking to add p2p lending to their portfolio. It is evidenced in this thread. $1000 is simply not enough to be fully diversified.
I don't like to compare it to Junk bonds, but glancing at vanguards high yield corporate fund - there was a significant loss in 2008. Lending Club notes overall lost -3.44% in 2007 and -.27% in 2008 as mentioned earlier. If you invested more conservatively you would have ended up even better. Say what you will about it still being early in their history, but I'd argue they have gotten better at underwriting since then. Time will be the true test of peer to peer lending.
Again, comparing lending club's loss in 2008 to the loss in a junk bond fund is utterly meaningless. The loss in a junk bond fund includes the loss in market value of the bonds themselves. Lending club loans are largely illiquid, so you have no idea what the value of a lending club loan is from day to day. They are not "marked to market." So if you purchased a house in 2006 for 100K and in 2008 it lost half of its value, lending club's "overall loss" would likely be zero as long as you hadn't completely defaulted on your mortgage. Of course the value of your loan would have depreciated by a significant amount on the open market (as you would now have negative equity, and a significant number of similar borrows would be missing payments and defaulting.
So , almost assuredly "overall loss" means nothing analogous at all. Is that the default rate of the borrowers? Is it the total percentage of principle lost? Please share your data. What it certainly is not is comparable the stock price of a liquid bond mutual fund.
Simply put you are comparing apples to oranges.
As to 700 credit score borrowers taking out a 12% (actually a 13% loan since lending club has an expense ratio of 1%) please share your data with a link. I'll gladly admit I'm wrong, if I am.
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I agree most all posts. I have been noticing more and more lately that Lending club has been selling off "charged-off" notes and not reimbursing its investors. I have also seen too many defaults in the loans in the past few months. it is killing and Interests that I have made.I feel like i have waited 2-1/2 years for such sucky ROI. It makes me soooooo Mad.
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After a 4-year experiment, I'm withdrawing my Lending Club loan repayments with plans to close eventually given the losses and fairly poor returns on supposedly highly qualified A and B-rated borrowers (my Lending Club net annual returns have been about 5.5%...and then I pay taxes on the OID/capital gain). Hope others have had better experiences!
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Yep - they've charged off way too many loans lately. The effective return is about 6% now.
I turned off automatic investing a few months ago and have been clawing back the cash as it comes in. I'll just keep that up until the return improves or the account goes to 0.
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The diversity of experiences and impressions with LC is sort of surprising. The bad experiences seem to be mostly emotionally-derived while the better experiences are just based on results. I fall in the latter group. 10.6% "adjusted net annualized return" last two years. It didn't take me more than 20 minutes to sift through loans and fund 100% on the day I signed up. Set it and forget it. I've had only one default out of 40. The only thing I don't like is the lack of liquidity and that fact I didn't invest 10x more. The alternative for me (and most investors) is money market funds or CDs (lower return), not the stock market (which has much higher volatility).
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The diversity of experiences and impressions with LC is sort of surprising. The bad experiences seem to be mostly emotionally-derived while the better experiences are just based on results. I fall in the latter group. 10.6% "adjusted net annualized return" last two years. It didn't take me more than 20 minutes to sift through loans and fund 100% on the day I signed up. Set it and forget it. I've had only one default out of 40. The only thing I don't like is the lack of liquidity and that fact I didn't invest 10x more. The alternative for me (and most investors) is money market funds or CDs (lower return), not the stock market (which has much higher volatility).
Perhaps I'm paying the price for having not sifted through loans. I set an allocation and let LC choose my loans. Early on my returns were great. But lately the write offs have increased. They are approx 4x what they used to be. It's a less appealing investment now and so I'm divesting. There really isn't any emotion involved in the decision.
Two other factors: raising cash for a possible RE purchase in a few months, and tax considerations.
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i hate to say it but i wont make another loan at lending club. if you browse notes you will now see the city the borrower lives in has now been replaced with just the first 3 digits of the zip code.
If that's your main reason for hating lending club, it ain't too smart... Google the first three numbers of your own zip and see if you don't come up with something in your own neighborhood... they haven't taken any info away from you.
I got two cities over 100 miles away from each other with the same first 3 as me. That doesn't seem to help the idea of being able to tell what living costs are like in the area. Both of those are DRASTICALLY different than the city I live in.
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If you are looking at zip codes you are doing this wrong....
I have 40k + in the acct and have had it there for 3 years. The site states 11-12% returns after my sell-offs of late notes. However, the real return is closer to 15% so far. The account gains 500->600 dollars a month at this point and I lose around 100 in sell-offs of late notes.
I expect this to settle at around 9-10 percent returns at the 5 year mark and hold there. I use a third party site to manage my rules for auto-buys and sells.
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"It's not until the tide goes out that you can see who has had their pants down."
-Warren Buffett
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Thread resurrection!
I've been drawing down my small Lending Club experimental account. The final irritation was seeing credits from recovered loans - alongside 'recovery fees' that were 2-3x normal admin fees. LC has has incentive to push loans into collection quickly so they can charge a premium fee. Because of all the charge offs, my 10% return is barely above 7% now. I don't hate it, but I'm continuing to divest.
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I have done really well with Lending Club over the past year. I have never bothered to hand pick individual notes. I used the auto invest feature, did some research to figure out good criteria, set it, and let it do its thing. I have been adding more money as the notes have continued to perform well. It's not a significant portion of my portfolio. My priorities are fully funding my ROTH and SEP IRAs, and paying down student debt.
Milesdividendmd makes some interesting points, and obviously this is something he feels strongly about. Good for him to play the part of devil's advocate.
Personally, there is still a place in my portfolio for Lending Club. I have been interested in hard money lending / buying notes, and lending club allows you to do that on a turn key diversified basis and without needing tons of money to get started.
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I too did auto-investing too. But, between LC being an after tax account (interest income belongs in a tax-deferred/exempt account), and the recent nickel and diming, I'm divesting. I don't think I'll close it, as I like the diversification, however I'm dialing it back.
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I'm considering drawing down my LC account as well. I do like the returns and the diversification (I do auto-invest and after 2+ years am around 8% returns.) But the thing that kills me is the taxes. I do our taxes and could not figure out a better way than to enter all of those darn $25 write-offs, etc. line by line. It took hours to get the whole thing in there. I asked LC and their only advice was, hold the loans in a non-taxable account.
If I could figure out how to better deal with the tax forms entry, I'd be interested in ramping up my investment (started with $10K). But no way unless someone has a secret for entering the tax info!
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You've gotta be kidding me - I thought those write offs were rolled into the end of year statement
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The diversity of experiences and impressions with LC is sort of surprising. The bad experiences seem to be mostly emotionally-derived while the better experiences are just based on results. I fall in the latter group. 10.6% "adjusted net annualized return" last two years. It didn't take me more than 20 minutes to sift through loans and fund 100% on the day I signed up. Set it and forget it. I've had only one default out of 40. The only thing I don't like is the lack of liquidity and that fact I didn't invest 10x more. The alternative for me (and most investors) is money market funds or CDs (lower return), not the stock market (which has much higher volatility).
Lending Club uses some potentially misleading graphs to illustrate higher returns than investors actually receive. If you look at their loan volume, you can see it increasing exponentially. This drastically impacts the reported returns, as most loans simply haven't had a chance to mature. As an example, according to Lending Club, the historical return of 'E' grade notes is 9.67% (https://www.lendingclub.com/info/demand-and-credit-profile.action)
But if you only look at completed notes, the picture changes. The return of all 'E' grade notes issued more than 3 years ago is just 7.69%. And the return of all 'E' grade notes issued more than 5 years ago (a significant portion of the issued loans have 5 year maturities) is just 5.77%. (you can verify these numbers by changing the parameters on the 'Loan Performance Details' section of the above-reference page.
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Following along. I'm not quite at the point where I have money to put into Lending Club, but maybe in a year or so.
What kind of accounts do you use / have you used? Do you have just a standard account or did you open your IRA (trad or Roth) through there?
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I've been investing with LC since 2009.
I dont have much invested, around 18K and my adjusted net annualized return is 8.8%.
Out of 700 notes, 45 in default.
While banks have been paying 0.1-1% interest for the past 6-8 years, I've been earning 8%.
While LC has its downside, I think its a great place to make few extra $$$.
Is it risky? Absolutely. How many investments with good returns are not.
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Resurrecting this thread, in case there are still Lending Club investors around. Big giant warning to you all.
I had put a small amount into Lending Club to test the waters - enough to diversify sufficiently with >200 notes but not enough to do more than minimal damage if it didn't work out. I liked the idea of potentially another asset class, but I wanted to give it a good test first. I'm now cashing out.
Starting in late 2015 I noticed that charge-offs zoomed up and recoveries were down (1-2% of charged off value as opposed to the 10-15% I'd been seeing). This was striking because the overall consumer credit market was not seeing an increase in credit card defaults. This is something fundamental to Lending Club, maybe having to do with their perverse incentives to maximize fees & minimize collection efforts (= time/employees). When I looked carefully at their data, I found that the high grade notes I'd been focusing on with all those wonderful reported returns have actually returned between -3% and 2% if you restrict your search to completed loans.
I started with what looked like a nice, sustainable return (expected ~10%) for the first 3 years. My official NAR has now dropped under 3%, from > 12% a year earlier. I've pulled out enough to cover taxes plus 90% of contributions, leaving a current account balance of 24% of the original investment. The ratio of net charged off amounts to fully paid notes (principle + interest) as reported on the account summary is 38% - and a high proportion of those chargeoffs were "mature" loans in the last third of their payment schedules. If that ratio continues, I can only hope to break even once the dust settles.
This isn't just chargeoffs, it's also about the tax disadvantage: interest is taxed at ordinary income rates, while chargeoff losses primarily offset long term capital gains, which are taxed at a much lower rate. So you can't simply subtract chargeoffs from interest and call that net profit, unless your account is in an IRA or you have no taxable investments that produce capital gains.
Take-home:
1) Lending Club is performing far worse than the overall consumer credit market, for reasons that are apparently intrinsic to their business model - and in a humming economy, no less. This is a huge danger signal.
2) Tax treatment is as suboptimal as it gets.
Basically, even if you're making money now, you might want to take a good hard look at the data for completed notes, and see if you still want to stay in.
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I sold off all of my notes on the open market back at the end of 2014 and into early 2015. I think I ended up about 10% give or take. I don't intend to invest in anything like it anymore and it looks like the idea just dind't work out for whatever reason. Not sure how prospr compares.
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I sold my $43,000 stake back in 2015 when my returns started tanking. I was also doing a big push to VTSAX and trying to just simplify my life.
That being said, P2P lending is pretty awful in it's current state. I STILL have capital losses that I am carrying over (you can only deduct 3k a year)
While I did make money overall, it was pretty "meh". It is hardly "passive" even though I had a good 3rd party automation tool.
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Lending Club was a bad experience for me as well.
I started in late 2013 and have less than $100 in my account right now. From late 2013 to mid 2014 I reinvested all my interest payments but I have been taking all the interest and payments out of my account since mid 2014.
Overall, I deposited $27,000 and withdrew ~$30,000. I am up about $3k and change, but the time spent and the negative tax treatment and the opportunity cost of not being in stocks and the illiquidity make me not recommend the endeavor.
Somehow, they claim I have a 6.76% annualized return which is hard for me to believe considering $3k divided by $27k is only 11% spread over 4+ years.
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If you want high yield debt in your portfolio, it's much better to just buy a junk bond fund like VWEAX, JNK, or HYG - or whatever has a low ER with no trade fee at your broker. 100% liquid, diversified over many holdings, and someone else already did the work of underwriting and evaluating the bond before adding it to your portfolio. Also, if you own a stock index, you're already exposed to consumer lending by owning a share of the banks that lend to consumers. The main downside to junk bonds is that they'll go down with your stock holdings in a crash, but probably to a lesser degree.
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I started in 2013 and am still over 10% so my only complaint is that I didn't invest 10x as much.
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Thanks for the reminder to go transfer out my available cash.
I started in 2014 or so with $1k as an experiment based off MMM's article. Did well for a couple years with returns in the 6%+ area even with a couple charge offs. Over time I started buying more F-G notes based off their projected return of 10%+
In 2017 I noticed my charge offs were roughly 40% of those poor grade loans, much higher than the expected ratio. My "adjusted for charge Offs" return rate is 3.9%, which is actually up from 2.9% a few months ago. I emailed them "hey you fucked up your projected returns big time and by evidence of you suspending F-G loans you are acknowledging a major screw up. Do you plan on fixing this?"
They of course wrote back that they do not return people's money blah blah. And so I slowly withdraw. The worst return projection I saw for the poor grade loans was 8% and that included Charge offs.
I hope they bankrupt themselves. They approved so many loans that I only ever got 1 payment on. Clearly people were coming to the platform to get $$ and the initial intent to never repay.
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Thanks for the reminder to go transfer out my available cash.
I started in 2014 or so with $1k as an experiment based off MMM's article. Did well for a couple years with returns in the 6%+ area even with a couple charge offs. Over time I started buying more F-G notes based off their projected return of 10%+
In 2017 I noticed my charge offs were roughly 40% of those poor grade loans, much higher than the expected ratio. My "adjusted for charge Offs" return rate is 3.9%, which is actually up from 2.9% a few months ago. I emailed them "hey you fucked up your projected returns big time and by evidence of you suspending F-G loans you are acknowledging a major screw up. Do you plan on fixing this?"
They of course wrote back that they do not return people's money blah blah. And so I slowly withdraw. The worst return projection I saw for the poor grade loans was 8% and that included Charge offs.
I hope they bankrupt themselves. They approved so many loans that I only ever got 1 payment on. Clearly people were coming to the platform to get $$ and the initial intent to never repay.
Tons of bad things involving lending club http://debanked.com/?s=Lending+club&x=0&y=0
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Similar experiences in other thread: https://forum.mrmoneymustache.com/investor-alley/lending-club-time-to-panic/200/
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After a 4-year experiment, I'm withdrawing my Lending Club loan repayments with plans to close eventually given the losses and fairly poor returns on supposedly highly qualified A and B-rated borrowers (my Lending Club net annual returns have been about 5.5%...and then I pay taxes on the OID/capital gain). Hope others have had better experiences!
Fun seeing this thread revived. Just withdrew remaining funds, account balance $0, final NAR 5.27%.
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LC is indeed abysmal. Been withdrawing only for nearly 2 years. I still have $10K stuck in it returning a whopping 5.5% (in theory at the moment, and of course destined to drop).
I won't have lost money, but as mentioned above, the opportunity costs are a bit painful to think about.
I do play a bit instead on PeerStreet, but my % invested in any P2P is definitely half to a quarter as much as it used to be.
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I started in 2013 and am still over 10% so my only complaint is that I didn't invest 10x as much.
Is this a benevolent thing?
VTSAX is up over 105% the last 5 years.
Or do you think the VTSAX is more risky than LC?
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Similar experience. Defaults soared starting in 2016 and I've been transferring cash out since then. On auto-invested loans, my return is barely positive, while on handpicked loans it is around 5%. I could have done so much better in stocks. Glad I put in less than a thousand in this play money experiment.
Scratch that- I logged in to check. Handpicked note return on 28 notes has fallen to 4.72% and auto-picked loans have a NAR of -2.13%. The weighted average interest rate on these 33 notes is 13.02%.
Anyone who is a decent credit risk has gone to their bank instead of Lending Club. Also, who would borrow * and repay* 20,000 over 5 years at 17.99% interest? That is in itself a redflag. You could do just as well with your CC.
On my handpicked notes, I only chose ones with a relatively low income and low note amount as I figured it would be easier to repay the lower amount and if that person lost their job their income would be easily replaceable.
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So moral of the story - don't bother getting into it now?
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So moral of the story - don't bother getting into it now?
Sooo many reasons to avoid it. The most obvious is that the yields suck, and everyone is anecdotally saying that good loan refinance and pay off early so you make nothing, while bad loans go bad, and you lose.
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So moral of the story - don't bother getting into it now?
Sooo many reasons to avoid it. The most obvious is that the yields suck, and everyone is anecdotally saying that good loan refinance and pay off early so you make nothing, while bad loans go bad, and you lose.
Also lots of fraud - people take a loan and don't make the first payment. I had a bunch of those. Over at Bogleheads someone was a victim of identity theft and the fraudster tried to take out loans at LendingClub and Prosper - the bad guys are on to them.
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I started in 2013 and am still over 10% so my only complaint is that I didn't invest 10x as much.
Is this a benevolent thing?
VTSAX is up over 105% the last 5 years.
Or do you think the VTSAX is more risky than LC?
Is that the alternative they would have invested in? Perhaps more fair to compare to a fixed income instrument, perhaps high yield bonds