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Lending Club Returns Update 3Q13

October 7, 2013 By Shane 9 Comments

Another quarter has come and gone. We’re bracing ourselves for the coming winter. It’s also time for a check-up on my Lending Club account, and the returns I’ve gotten. In my 2Q13 update , my account was showing a return of 14.08%. Keep reading to find out if I’ve managed to maintain that rate.

No More Defaults

One of the other things that I wrote about in last quarters update was that my portfolio finally suffered it’s first defaulted loan. In this quarter, I had a few loans that went into the late categories, but ended up coming back to normal. I’m still a little surprised that I haven’t had more defaults. I’m glad that I’ve been lucky enough to only have the one default since January, 2010.

Active Passive Income

The closer you get to true passive income, the less work you have to put into it. Lending Club portfolios are not true passive income. I’ve discussed it before, and it bears reiteration. They are awful close though. In all, I spend about 20 minutes a month to reinvest the payments and interest that have come in. It’s not all at once, usually. With the $9-$10 in interest that my portfolio is earning each month, that’s a pretty good wage. Maybe it’s an active passive income stream. Oxymoron for the win!

Lending Club Return Rate

Now, for what everyone has been waiting for. (Or scrolled down really quickly for) Without any further defaults, and staying on top of reinvesting the funds as they come in, I’ve been happy this quarter with my return. As of 10/4/13, my current Lending Club returns rate displayed is 14.69%! It’s bounced back nicely from the default. I’ve been investing the funds a little more aggressively over this quarter which helps explain some of that. At this point, my reasoning is that I’ve been investing with Lending Club since 2010 and have only had one default. The risk is still there, I think, but I don’t think it’s quite as bad as some would like to make it sound.

Where will my rate be at the end of the year? I’m hoping it will remain steady. I’ll be maintaining the same Lending Club investing filter, and hope that doing so will maintain the low default rate I’ve been lucky enough to have.

How is your Lending Club portfolio doing?

5 Ways a Better Credit Score Leads to Better Finances

August 30, 2013 By Shane 12 Comments

Everybody knows that you want to have the best credit score you can. Why? Because the better your credit score, the better the rates you can get on your loans, of course! But, did you know that there are other reasons to try and improve your credit score? In fact, here’s five ways that having a better credit score can lead to better finances.

More money. This is the obvious one. A better credit score leads to better rates on loans (see above), and better rates lead to less interest paid over the life of the loan. And less interest paid leads to… (wait for it) a better bank balance!
Better rentals. It’s a sad fact that many landlords are doing credit checks on prospective tenants these days. They’ve got assets to protect, so it’s a smart move for them, but the fact that there are so many landlords out there getting burned that it’s become necessary is sad. But, having a good credit score can help make sure you don’t get turned down for that great apartment down by the beach!
Quicker payoff. This one goes really closely with the first point. With those lower rates, and lessened interest also comes the ability to pay the loan off quicker. And, of course, a quicker payoff means a much better financial situation. Especially if you avoid any new loans afterward.
Any loan you like. If you must loan money, at least do it smartly. With the current state of affairs, you can’t just walk in and get a loan that has a pulse as it’s only requirement. In fact, many banks and credit unions are cutting way back on their sub-prime lending for anything. (P.S. the term “sub-prime” doesn’t just apply to mortgage loans) If you have poor credit, it’s much more likely, today, that you’ll get turned down for a loan altogether. Better credit means that if you really need a loan, you probably can have one.
Less fees. We all hate fees. Well, all of us except the financial institutions. A growing number of them are making a growing amount of their revenues from fees. And many have moved to an account structure that is based off of risk. And risk is determined by credit score. A lower credit score could mean an account with higher fees, or with monthly fees that some accounts might not have, while a higher credit score might qualify you for a different account without those fees.

So, you see, having a good credit score can really send your finances in the right direction. And, having a bad credit score can really send them into the dumps in a hurry too! Unless you’re very dedicated to the extreme frugaler lifestyle, and never plan on really using money, it still pays to have a good credit score. It doesn’t take much to build it, and you might be glad you did someday.

photo credit: o5com

Lending Club Return Update 2Q13

August 5, 2013 By Shane 5 Comments

Lending Club is a peer-to-peer lending service. People (like you and me) sign up for their site, and list a loan to be funded by investors (like you and me). I like to think of it as replacing the bank in a loan with me. (Except I’m not “too big to fail”.) Of course, with that comes the same risks that the bank assumes when it issues a loan. There’s a risk of late payments, missed payments, and default and it’s associated collection activities. Luckily, Lending Club and Prosper (another p2p lending site) take care of most of the paperwork for the lenders (and borrowers). This post is the second quarter update on my Lending Club account, and the return I’m getting on my money.

If you’d like to catch up a little, here’s links to the last few quarterly updates. (1Q13, 4Q12, 3Q12)

First Lending Club Default

I’ve been mentioning in the last several updates how lucky I’ve been that I haven’t had a loan go into default yet. Well, that streak ended recently. I knew it was only a matter of time before one of the notes defaulted, and one has. Luckily, the loan that defaulted was a small one, and my portfolio has grown enough that the value of the default didn’t really affect the account too much. The value of the defaulted loan is about 1% of my Lending Club portfolio.

There’s also a loan that is in the 31-120 days late category, that has the possibility of going to default, but at this point, the borrower is making attempts to pay the loan. The reason it’s still in the late category at all is because the most recent payment was only a partial payment. This loan is a larger loan than the defaulted one, so I may have to consider taking the loss on it and selling it at a discount to get it off my books.

Diligent Reinvestment

One of the things that I like most about Lending Club, and p2p lending as a whole, is that you get a relatively high churn on your money. It’s not a buy-and-hold scenario, per se. Yes, you invest in a note with the expectation of holding that note until it is fully paid off, but, as the payments come in monthly, that money is available for reinvestment. In my 1Q13 update, I mentioned that I’d been a bit lazy in my reinvestment of those funds. I was slightly better with that in the second quarter, and was able to keep most of the money pretty actively invested.

I knew it was only a matter of time before one of the notes defaulted, and one has.

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Passive Income from Lending Club

Many people (myself included) call p2p investing a form of passive income. While not strictly meeting the criteria in that it does still require some activity on the investors part, it’s pretty close. Maybe we need to start defining passive income in terms of it’s passivity? Something like levels. Each level is achieved by it’s decile of passivity. For instance, I think p2p investing could be somewhere around 90-95% passive. That would make it a Level 9 Passive Income source. With about 15 minutes of work a month, I’ve earned almost $60 in interest payments as of the end of June of 2013. Last year, with the same amount of work, I earned $75.37 in interest payments. If I had significantly more money, that amount would be larger, but I think that the time spent each month to earn it would be a bit larger as well. Still, a pretty close to passive means of making some money.

Lending Club Return Update

We’ve talked about most of the rest of the account, but the title did say that it was a return update, right? Yes. In my 1Q13 update, I mentioned that the rate of return then was being shown as 14.63%. As of 8/3/13, it’s being displayed as 14.08%. The combination of the defaulted loan, and the payoff of a couple of higher interest paying notes is bringing the rate down. I’ve been happy with the return I’ve been getting, but I truly think that a more reasonable expectation of return is somewhere in the 10-13% range. I’ll take the 14%+ returns I’ve been getting though.

Click here to learn more about how I select my Lending Club investments.

Overall, I’ve been really happy with my results at Lending Club. And, with the p2p lending industry as a whole issuing over 200 Million in loans in July, it would appear that there are plenty of other happy users too.

Have you gotten your feet wet in p2p lending? Why or why not?