Thursday, October 29, 2015

An Analysis of My Lending Club Account

Lending Club is a marketplace lender.  Investors can purchase shares of loans which are made to ordinary people, and receive the interest paid by the borrowers, minus a processing fee.  Unfortunately, if the borrower does not pay, the lender, not Lending Club, loses money.  Fortunately, the interest rates seem to be set so as to give most investors about an 8% return on their money after bad loans are subtracted.

Lending Club allows investors to purchase shares in newly approved loans, or to purchase shares that other investors, for whatever reason, no longer want to keep.  The resale market is based on supply and demand; the owner of a note can ask whatever price is desired; whether or not it is purchased is up to a buyer.  I have been investing in both new and resale notes for over a year now, and the defaults are starting to hit.  I decided to take a look at my portfolio, analyze it, and share the results with you.

Right now, Lending Club says I have a net annualized return of 14.13% on the notes I bought new.  However, if you mark down the ones with delinquent payments at the amount Lending Club has found to be accurate in the past, that drops to 10.57%.  On the resale notes, my net annualized return is 8.01%, which adjusts to $4.74%.  The total for my portfolio is 11.98%, adjusted to 8.53%.

As of this moment, I have 1074 notes.  407 were resale notes.  About 4.2% are not current and about 1% have been lost after a year.  One thing many of the blogs I read about Lending Club said, and which Lending Club's statistics tend to confirm, is that the greatest risk of default is in the first year.  In general when I buy resale notes, I buy notes that are at least a year old.

526 of my notes were for 36 month loans; 555 were for 60 month loans.

Of the 667 new notes, 3.9% are not current and about 2% have been lost after a year.  My overall return is higher on the new notes than the resale notes because I bought a lot of low-risk resale notes when I first started investing.

I have 123 "A" notes.  60  were purchased new; the rest were resale notes.  All the resale notes are current or paid off.   Of the new ones, two are 1-15 days late.  Thirteen"A" notes are paid off, two were new.

I have 168 "B" notes.  34 were purchased new, the rest were resale.  Two have been charged off, and they were both resale notes.  Three are 1-15 days late.  Three are 31-120 days late. All the late notes were resale notes. 51 have been fully paid; only three of those were new.

I have 242 "C" notes.  171 were purchased new, the rest were resale.  Of the six that are late, one is new, the rest resale.  Four "C" notes were charged off, of them one was a resale note.  22 have been fully paid; of those 8 were new.

I have 239 "D" notes.  Of those, 209 were purchased new.  Three "D" notes have been charged off and two are in default (they usually only spend a few days in this category before being charged off).  All were new.  10 are late and of those, only one was a resale note.  22 have been fully paid and 13 of those were new.

I have 215 "E" notes.  Of those 33 were resale notes.  Seven notes are late but as of this writing, no "E" notes have been charged off.  15 have been fully paid; of those 8 were resale.

I have 45 "F" notes.  Of those, 17 are resale notes.  One was charged off and it was a resale note.  Three are late; one of which is a resale note.  Four have been paid off, three of which were resale.

I have 31 "G" notes.  Of those 16 are resale notes.  one has been charged off, and it was new.  Two are late, one new, one resale.  Three have been paid, one of which was resale.

My conclusions? While roughly 40% of my notes are resale notes, 45% of my grace period (late 1-15 days) notes are resale notes.  40% of the other late notes were resale.  36% of the default/charged off were resales.  However, while roughly 40% of the notes were resale, they only represent about 30% of the money invested.  The defaulted resale notes accounted for 29% of the principal I lost due to defaults.  While I bought resale notes with the hope that I would lose less money to default, that doesnt' seem to be happening.  Since Lending Clubs fees hit you a lot harder at the end of the loan than the beginning, I do not think the ones I have been buying have been helpful to me.

*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Shoeaholic No More*

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