Beating Broke

Personal Finance from the Broke Perspective

Lending Club Returns Update 3Q13

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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

Beating Broke Lending Club UpdateThe 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?

Lending Club Return Update 2Q13

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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)

Beating Broke Lending Club Update

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.

[Tweet “I knew it was only a matter of time before one of the notes defaulted, and one has.”]

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?

Lending Club Update 3Q2012

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Lending Club is a great tool for making some very nice passive income.  I’ve been using my account to invest some funds and see what I can do as far as a return, as well as to learn more about the service and what can be done with it.  As someone who lives in a state where the direct investing isn’t allowed (state laws that need changing), I use the FolioFN trading platform within Lending Club to make my investments.  This eats into my return a bit, as I pay a small premium to the original investor when I buy the investment.  However, I’m finding that even with that small premium, my return is still far above what I am making in any savings account.  If you’d like to start at the beginning of the year, you can read my 1Q2012 and 2Q2012 updates first then come back to this one.

Lending Club Returns Growing

After the last update, in July, I made the decision that I could increase the risk level a bit on the my portfolio and still safely be in a place where it wasn’t too high.  While I don’t have a direct history of working at a commercial lender, I did work in I.T. at a Credit Union.  (Also, I did not sleep at a Holiday Inn Express last night.)  In my position there, I learned a few things about the way the backend of an institution works.  And, what I can tell you is that the credit scores that are getting C and even D ratings on Lending Club would be the average borrowers at a commercial brick-and-mortar institution.  What that tells me is that even the C and D rating loans at Lending Club are still a pretty safe investment.  After all, if the banks and credit unions couldn’t make money on them, they wouldn’t loan to them.  So, I increased my lending in the C and D ranges and have now moved the middle of my portfolio into the C/C- range.  It’s weighted a bit riskier, but the reward is a bit higher as well.  At the end of 2Q2012, my rate was stated on my dashboard as 13.58%.  At the end of 3Q2012, that rate has increased to 14.08%.

Lending Club 3Q2012 Returns update

A half a percent increase doesn’t sound like much, but it’s twice what my local savings account pays!  If I’d have dumped that money into my savings account instead, I’d be making half of just the increase I made last quarter.  Sad, no?

Delinquencies and Diversification on Lending Club

If you read the 2Q2012 update, you’ll know that I had two loans that have entered into the delinquency statuses.  One of which, I was able to immediately sell on FolioFN for the outstanding principle.  I lost the interest, but also lost the risk of it becoming a written off loan.  The other had a very low principle balance on it, so I decided to keep it to see what would happen, and to force myself through the collection process should it have gone that far.  It did not.  The loan went so far as to become 31-120 days past due and then a payment was made that brought it current.  It has remained current since then.

This is a good time to talk about diversification too.  As you can see from the above screenprint, I have just under $700 in my Lending Club account.  Nearly all of that (except the $17.72 in available cash) is invested into loans.  All told, I have investments in 37 loans currently.  That’s an average investment of about $18.50 per loan.  Obviously, some of them are nearing payoff, and others are nearer funding, so the actual amount per loan varies wildly between $0 and $25.  I do try and keep each investment to about $25-$30 to maintain that diversification.  If any one of the loans were to go into collections and then be written off, I’m only loosing a small fraction of my overall portfolio, and the hit would be minimal.

Much like any other investment, whether it be in stocks, real estate, etc, diversification can greatly improve your risk tolerance.  The risk of having one or two loans that go bad is far outweighed by the fact that you’d still have 10, 20, 30, or more loans that are in a current status.  I’ll continue to monitor for loans that go past due and then decide individually whether to keep them or to try and liquidate them through the FolioFN trading platform.

Other notes

Over the last quarter, my Lending Club account has reached a point that the principle payments combined with the interest payments exceed $25 a month.  What that means is that part of my experiment is complete.  I’ve been able to create a portfolio of self-sustaining investments.  I can stop putting any new funds into the account, and be able to reinvest the returns each month without having a whole lot of dead money sitting around waiting on me to invest it.  At most, any funds from payments should only sit around for a maximum of about 30 days.  It’s not ideal, but it’s far better than it could be.

I don’t intend to completely stop adding funds to the account either.  I want the portfolio to grow at a slightly faster clip than it would with just the returns and payments, so I’ll continue making deposits into it.  I like the way the portfolio is currently balanced, so will likely try and keep it that way.  What that likely means is that I shouldn’t expect to see any major movement on the rate of return.  I’m happy with the 14% I’m currently getting though, so that isn’t really a problem for me.

How many of you have not invested in a P2P lending account like the mine at Lending Club or at Prosper?  Why not?