Beating Broke

Personal Finance from the Broke Perspective

Lending Club Update 4Q2012

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Now that the year has ended, and the new one has begun, it’s time for another Lending Club Update.  (Here’s the link to the 3Q2012 update if you care to read it.)

A couple of significant things happened in the final quarter of 2012.  My account maintained sustainability and I stopped contributing to the account (temporarily). I’ll go over each in turn, but the first is a milestone that I have been waiting for, while the second was something that just needed to happen because of my personal financial situation.

Lending Club Account Sustainability.

What defines sustainability?  For me, I’ve defined it as receiving in excess of $25 a month in principle and interest payments.  My account first reached that goal in June of 2012, and has maintained it since.  In August of 2012, it came close to dropping below that threshold, but managed to stay above.  It seems to have settled in at about $30 towards the end of the quarter, so hopefully as that money is reinvested, that number will continue to increase.

Beating Broke Lending Club Update

The entire quarter saw the interest payments that I received rise to a little over $9 a month.  I won’t likely get rich off of that, but it’s also not an insignificant amount on an account that has a total just under $800.  The Net Annualized Return (NAR) that’s being displayed on the account homepage is up .4% to 14.48%, a number I’m happy with.  There’s some argument over whether you should really use the NAR as a gauge of the account performance or not.  I won’t pretend to understand most of it. 🙂  What I do understand though is that having exact figures is less important to me for this experiment than it is to have a standard metric to measure my results by.  So long as the method of calculation remains the same, it should give me a general idea of how the account is doing.  (I’m open to learning more about how some of this is calculated.  Drop links in the comments!)

Contributions Stopped.

I stopped my contributions to the account in November.  If you’ve been reading along with the site, you’ll know that we ended up having some financial difficulties at the end of October.  As a result, much of the money that I was using to fund the account ended up getting transferred to my personal account to help dig ourselves out of that rut.  It isn’t any reflection on Lending Club, but a reflection on my finances and the need to help keep the ship afloat.  We’ve mostly righted the ship, now, so I’ll likely start putting some money back into this account sometime in the first or second quarter of 2013.

My Lending Club Portfolio

My portfolio remains strong.  I still haven’t had any defaults.  *knock on wood* While this experiment of sorts (it’s gone beyond that, I think) started in July of 2011, I’ve had my account at Lending Club since January of 2010.  That’s a pretty long stretch to go without a default of any sort.  You might recall that I sold a loan that had gone delinquent in the 2Q/3Q 2012 area.  I also had a second loan that had gone late, but it eventually was made current.  Currently, my portfolio has 42 loans in it.  All of them are current.  It also has 13 loans that have been paid in full.  Of those, perhaps about half have been paid off in advance.  That’s both good and bad.  I like that they’ve paid them off in advance because it seems to show that the borrowers are perhaps getting their finances together.  It’s bad, because I lose out on some income from interest when they pay them off early.  One of the risks of this income stream.

I’m still not able to directly invest in loans, and still have to invest through the FolioFN platform.  It’s still not ideal.  But, until my state (North Dakota) pulls their head out, and starts allowing it, that’s what I’m stuck with.  I’m not holding my breath.  I’m not going to complain too much, as I do seem to have found a pretty good method for selecting my Lending Club notes, and it seems to be working.

How are your investments starting off the new year?  How’s your Lending Club (or Prosper) account doing?

Can You Fund Your Own Lending Club Loan?

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In order to be both a borrower and a lender at Lending Club, you have to open two accounts.  With two accounts, can your lender account fund your borrower account’s loan?

One of the things that I occasionally do to find new ideas to write about is to go through the referral logs and look at the search queries that have clicked through to the site.  One such query was “Lending Club can you fund your own loan”.

I want to be upfront with you.  I haven’t asked Lending Club for an official policy on this.  If I had to guess (which I’m doing now) I’d say that they don’t allow it.  At first, I couldn’t figure out why someone would even want to fund their own loan.  The only thing that I can come up with is to perform some sort of arbitration.  Saving some money on interest rates while paying yourself a bit of interest as well.

While that might sound like a good idea, it probably isn’t.  First, if you’re using the loan to pay off higher interest rate debts, you’d be better off just using the cash you’re planning on using to fund your loan to pay down the debt you already have.  Instant savings equal to the interest rate of the debt.  No need to worry about breaking rules, just instant savings.

The more compelling reason you probably don’t want to fund your own loan on a P2P lending site like Lending Club is all the fees and taxes you’ll end up having to pay.  First, you’ll pay an origination fee on the loan.  This could be anywhere from 1% – 5.5% of the loan depending on the credit “grade” of your loan.  Next, you’ll pay fees on every payment that you pay yourself, further eating into any advantage.  Finally, when tax time comes around, you’ll pay taxes on the interest income on the lending account.

The combination of the fees you’ll incur through Lending Club, and your effective tax rate will, in most cases, completely erase any benefit you might see from paying the interest to yourself.  It just doesn’t make sense.

So, can you fund your own Lending Club loan?  I can’t think of a good reason why you’d want to.

Want to know how I suggest you use Lending Club investing?  Check out my 2Q12 Lending Club results.

 

Lending Club Returns 1Q2012 Update

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If you’ve been following along, you know that I’ve been performing a bit of an experiment.  I’ve been taking 10% of my earnings from this and other online ventures and splitting it evenly between Lending Club and Sharebuilder accounts.  The idea was to see what kind of returns I could get from the two, and to test for stability.  I’ve been running the experiment for a little over 6 months now, and I’m calling it done.  The difference has been so drastic, that I don’t think there’s any point in running it any longer.

In short, Lending Club is kicking Sharebuilder’s butt.  Really, the only thing that the Sharebuilder account has going for it is that the chance of default on any of the investments is extremely low.  So, I suppose that it is possible that in 5 or so years, the gains on the Sharebuilder account could potentially be better.  However, as I’m about to show you, the short term results are strongly in Lending Club’s favor.

My Lending Club Returns

As of today, Lending Club is telling me that I’m seeing a return of 13.15% on my account.  My Sharebuilder account is currently reporting a return of -16.42%.  It doesn’t take a math major to come to the conclusion that Lending Club is performing far better.  To date, with a bit over 2 years of total history, I haven’t had a default in my Lending Club account.  I’m pretty sure that has more to do with just getting lucky, than with any effort of my own. Some other interesting numbers, besides the return: The portfolio has grown enough that it brings in enough in principle + interest payments to reinvest monthly now.  The monthly interest gains, as of the end of March, have now exceeded $4 monthly.  It’s not much, but it’s been fun watching that number grow.

My Lending Club Portfolio

Open a Lending Club AccountWhen I first started out investing in my LC account, I was investing in mostly A, B, and C investments.  I’ve recently shifted that to be mostly C and D investments. Why?  Well, as I mentioned in my post on selecting Lending Club investments, I have to purchase my investments through their trading platform rather than directly invest in the loans.  What that means is that in most cases, I have to absorb a small percentage of profit to the original investor.  So, a loan that has an actual interest rate of 14% might only return 11% to me because I bought it at a higher price than what it was worth in principle at the time.  Because of that, I have to invest in the higher grade loans in order to maintain a higher return rate.  But, I’m OK with that.  Even the worst graded loans that LC has are still well above what a traditional bank or credit union would lend to.  And, at less than $25 per investment, I can afford to take the risk.  I’ve diversified the account so that one or two defaults isn’t going to destroy the account.  Sidenote: If you can buy your LC loans directly, I suggest you check out Peter at SocialLending.net’s post on how he’s investing in 2012. He’s got several filters and some interesting insight into how he’s set up his investing that are worth the read.  They’re somewhat useless to me because of the way I have to invest, but will be useful to someone who can invest directly.

Lending Club, Going Forward

With the end of the “experiment”, I’m now putting the full 10% that I had been splitting into my Lending Club account.  The overall total for the account is still at less than 3% of my overall investment portfolio (including retirement investments), but it is growing.  At some point, I’ll have to decide if I want to continue to add to the account or not, but with the returns that I’m getting, and the luck I’ve had in the default area, I can’t see wanting to stop investing in the account.

Have you given Lending Club a try yet?  How have your returns been?  What’s your default rate?