How to Pick Lending Club Notes

Lending Club is a Peer-to-Peer lender.  Investors are able to review data regarding people who want to borrow money and have to select the borrowers to whom they want to lend.  When Lending Club started, potential lenders were able to question potential borrowers about their needs and plans for the money.  As the platform grew, that feature disappeard.  Now, investors can see a collection of data points about the borrowers, but there is no personal contact and the information is vague enough that your best friend could have an application on the platform and you would not recognize it unless you knew it was there (and probably not even then).

I am writing this article on a Saturday night (yes, I lead an exciting life) and as of this moment, there are 1175 loans looking for funding, probably one of the lower numbers of the week.  There are over 200,000 resale notes available.  How do I decide in which notes to invest?

Read the Listing, Select the Note:

This is the old-fashioned way to do it, and some people swear by it.  However, as the listings today are a set of data points, I don't know how you get any "feel" for the borrower by doing this.  While it may make control freaks feel better, it is time-consuming.

Use Lending Club's Automated Investing:

Lending Club offers an automated investing feature.  Investors either select one of three targeted returns (A&B Weighted, Platform Mix or D-G Weighted) or select their own mix, push the button and let Lending Club select the notes for you.  If you choose to select your own mix, you can determine what percent of your notes should be from which rating and you can use any filters you want to use.

Use Lending Club's Note Browser to Filter and Select Notes:

If you click on Browse Notes on the Lending Club Homepage, there is a filtering mechanism on the left-hand side.  If you don't want to lend to anyone who has had any delinquicies in the last two years, you can filter out those borrowers.  If you want to lend to people who are paying medical expenses, you can filter them in and everyone else out.  It is up to you.  Once you have your filters set, you can save them to run again, or to use with automated investing.  

It is Lending Club's goal to assign the same interest rate to loans that share the same risk of default.  If you filter beyond saying that you want a particular grade of note, you are basically saying that you think you are smarter than Lending Club.  You are looking for notes that aren't as riskly as Lending Club thinks they are.  NSR Platform can help you back-test potential filters, however, Lending Club is running the same kinds of tests, and adjusting their underwriting when they find a discrepancy.  That isn't to say you can't find a filter that could help; only that it won't be easy.

This method offers the advantage of personal control--you see each note before you invest and can decide not to invest if anything looks "off".  It is more efficient than looking at 1100 notes to select 5.  You can start with broad criteria and keep adding filters until you get down to a number of loans you are willing to review.  

Use A Third-Party Service to Pick Your Notes

The main advantage to Lending Club's Automatic Investing feature is its cost--free.  However,it does not make any attempt to beat the average, and people say it goes for the leftover notes, it does not push to the front of the line for the "good" ones.  Third-Party vendors use Lending Club's API (don't worry if you don't understand it; they tell you how to set it up) to purchase notes for your account, and they do push you to the front of the line, so to speak--their computer fires up when Lending Club releases a new batch of loans and quickly selects  the ones it wants for your.  They also try to select what they think are the best loans.  While most of the services offer a certain number of free picks, their goal is to get you to pay them a small fee per note for their help.  Some of these services are:

NSR Invest 

NSR Invest is for people with more than $5,000 to invest and they will fully manage your account (if you want) once it exceeds $10,000.  They start charging when the account exceeds $20.000 and they charge 0.6%.

Peer to Peer Quant 

Peer to Peer Quant uses computer modeling to select the notes it believes will give you the highest returns. As I am writing this, there are about 1100 notes available on Lending Club; 225 appear on their platform.  Those notes are all C, D, and E level notes, except one F.  That is in keeping with Lending Club's published statistics what show them to be the top performers. There are 629 C, D and E notes available as of this writing, so Peer to Peer Quant has decided that 225 of them are better than the others.  They have been using their system since July, 2014 and claim a return of 10.3% in the last twelve months.  If you check Lending Club's Loan Performance Details chart you'll see that for loans issued between the third quarter of 2014 and the second quarter of 2015, the annualized return was 9.5% for C's, 10.9% for D's and 9.69 for E's.  That does not take into account the cash drag that Peer to Peer Quant's return does.

To use Peer to Peer Quant's service, you create an account.  Their website then gives you a list of what they consider to be the best currently available notes, and recommends that you start at the top of the list and work your way down, in order, until your money is spent.  You select the notes you want and how much money you want to invest in each.  The notes are then purchased and put in your account. Peer to Peer Quant gives users five free selections each month so you can kick the tires to see if it works for you.  I have an account with them.  I have invested $1146.71 (they recommended secondary market notes for a while and I tried some of them) in 51 notes.  The weighted average rate on those notes is 16.35%.  I lost $24.44 when one of the notes charged off.  All the others are current.  Two have been fully paid.  I have earned $83.33 in interest, which is about 7% of the amount invested.  If  you subtract the money lost to the default, my return to date (gross, not annualized) drops to about 5%.

Lending Robot

Lending Robot  (that's an affiliate link, and I get some free picks if you use it) has several models from which you can choose, or you can design your own filters.  Their advantage is speed.  Lending Club posts new loans several times daily, and those considered desireable by many people are filled almost immediately.  Lending Robot gives you the ability to grab those loans.  When you are trying to invest a large sum of money a speedy tool like this can get you invested (and earning interest) much sooner than any manual method and even faster than Lending Club's Automatic Investment.  The first $5,000 they invest for you is managed for free.  You can earn additional sums to be managed free by getting folks to invest via affilliate links like this one.  The rest of the money is managed at a rate of 0.45% per year.  On a $15,000 account, that is about $3.75 per month.

I have an account with Lending Robot.  I invested in their Credit Refinance portfolio and in their Popular Loans portfolio.  1.3% of my notes in Credit Refinance have defaulted.  4% are currently late.  My weighted annual interest rate is 18.16%.  So far I've earned interest worth 9.3% of my principal.  If you subtract the principal I've lost, and the amounts Lending Club estimates I will lose on my late notes, my return so far is 6.2% of what I invested.  That's not really an APR because each month when payments are made, the money leaves this pot since I'm no longer using Lending Robot to reinvest.  Another way to look at it is that these notes are 14% of the notes I own and 15%  of the defaults.

Peer Cube 

Peer Cube has a lot of statistical information and offers a collection of filters with expected results.  They also have a paid plain for which they chare $19.95 per month and they will automatically invest your money.  

The services above are all new enough that they do not have a long-term track record that could be compared against just buying the platform.

How do you pick your Lending Club (or Prosper) notes?

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

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*

Ups and Downs with Kickfurther

I started investing with Kickfurther on April 9, 2015.  Since that time I have invested $2321.25 and re-invested paybacks and earnings.  As of right now, October 15, 2015, I have invested in 43 different offers.  Of those, seven have paid back my entire investment, plus earnings of between 8% and 20%.  Most paid back earlier than expected and the APR on those deals ranged from 22.01% to 56.13%. That's the good.

Click here to purchase

See this doll?  He is "American Girl"-sized and comes with a story.  The story explains that his brother has autism, and what that means.  The doll is made by LorettaRose, L.L.C. and  is outfitted and packaged by students with disabilities, sponsored by the My Sibling Work Experience Program. This program provides job sampling experiences for students, aged 14-21, who are entitled by federal law to have transition services in their school setting.  While LorettaRose is a for-profit company, one of their missions is raising children’s social consciousness about caring for their peers and environment. They also educate the public about the need for more services for teens and adults with developmental differences.  Kickfurther allows me to invest money in small businesses and to help them grow.  I have an autistic son so this company caught my eye.  That's more good.

Click here to purchase

This guitar, on the other hand, is being sold by a business which promised a 5% return after three months.  Their second of three payments was supposed to be last week; so far they haven't made any payments and the excuses have ranged from "the check is in the mail" to "the owner had a pulmonary embolism".  The owner has been rude to the backers and there were serious discussions about repossessing the inventory, though the decision was made to continue to monitor the situation for now.  

Kickfurther, in case you haven't read my other posts on the topic, finances businesses that sell tangible items.  The businesses apply for the amount they need to purchase a particular product or mix of products and offer a percentage return after a pre-determined period.  Businesses are allowed to offer as high or low return as they wish and as long or short a return period, providing their past sales figures indicate the sales are realistic.  Investors purchase shares starting at $10.00.  If enough people invest, the deal is done; if they don't, then the company can try again with different terms. If the deal is done; Kickfurther purchases the merchandise as agent for the backers and gives it to the company to sell on consignment.  In other words, in the strictest sense of the word, these are not loans, they are consignment sale contracts.  When the company sells the merchandise, they are supposed to pay Kickfurther for it.  If the merchandise doesn't sell, Kickfurther can re-possess it and try to sell it through other channels to recoup at least some of the backers' money.

One thing I like about Kickfurther is that these are not unsecured loans.  Most of these businesses are small and/or relatively new.  If they fail, I don't want to be in line with a bunch of other unsecured creditors trying to get money where there is none.  However, it seems to me that many of these businesses are treating these contracts like loans.  They are making equal payments on the due dates each month.  If they are paying for the inventory before they sell it, for whatever reason makes sense to them, that doesn't bother me.  What concerns me is that it is also possible that the business has sold our inventory and is using our money for other things, planning to make payments as scheduled.  That could lead to a situation where the company spends our money on something like rent, or to purchase additional inventory, and then is unable to pay us back when promised (or, worst case, at all).  Kickfurther is a relatively new platform and it makes changes where needed.  They are working on a system to track inventory sales.

As I said above, I have invested in 43 offers.  Seven have paid back completely.  Three are two months overdue with no payments made.  Five have had payments due and have made them, but one of those is substantially under the amount needed to complete payoff timely, though she has stated she is trying to catch up.  The other 28 offers have not had a payment due yet, so I think it is far too early to draw conclusions about the return on this investment.

How typical is my portfolio?  Judge for yourself.  There is a sticky post at the top of this subreddit that gives the status of all Kickfurther offers.

*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt*