It’s been awhile since we’ve done a Lending Club update. If you’re not familiar, Lending Club is a peer-to-peer lending service. Regular people like you and me can use the site to borrow and lend money without using a bank. To run the service, Lending Club charges each party a small fee. But in general, borrowers pay lower interest rates and lenders earn higher interest rates than they would using traditional borrowing and/or investment channels.
My Lending Club Experience
I was a fairly early investor in Lending Club – I made my first loan in 2008. Then the site closed to complete SEC registration. When it reopened, I stayed on the sidelines for a bit. But in early 2009 I couldn’t help myself and became a regular investor. I tended to invest in 1-2 notes a paycheck, for a total of about $1000 a year. I also reinvested all payments I received from the site. At one point, my selective lending criteria was earning me about 10% a year on a total investment of about $3,500.
When I first started investing, I invested in mostly A and B loans. But I found that the interest rates were so low that even one default really drove down my total return. LazyMan discovered the same thing – and just like him, I decided to up my risk in the hopes of increasing my return. It worked for a while – but over time, a larger number of loans defaulted, and my return went back to hovering somewhere around 4-6%.
Around that time, I decided that I wanted to aggressively attack the remains of my student loan debt. Because the interest rate on that loan was above 6%, using funds to invest in new Lending Club loans was not really the best use of my cash. So I stopped adding new money, and began to withdraw much of what I earned. In the meantime, more of my loans went bad.
My Account Today
My Lending Club account currently shows a Net Annualized Return of 3.64% – not bad considering the number of defaults I’ve had, but not great. I receive about $80/month income off of my $3500 investment – but that amount is decreasing as some loans reach maturity. All told, a full 10% of my loans have been charged off, and several more look to be headed that way. What’s frustrating is that there doesn’t seem to be a rhyme or reason to the charge-offs – they come from borrowers with different credit scores, incomes and types/amounts of loans. Because of this, my defaults aren’t a good indicator of what to stay away from in the future.
My Future with Lending Club
I’ve made only a few loans in 2012. I currently withdraw most of the money I receive in payments every couple of days, using it to pay down the (nearly non-existent!) remains of my student loan and save for my next big expense. If I ever happen to log in and have over $25 sitting in my account, I do use it to buy a new loan. I’m not adding any new money to my account right now, but I still haven’t quite been able to give up investing altogether!
I’m anticipating that the next year of my life will be among the most expensive I’ve had. Steady cashflow is vital, which doesn’t leave a lot of room for “fun” investments like Lending Club. But when the dust settles and I find myself with a little extra cash on hand, I do plan to dive back in. While Peer-to-Peer lending may not be quite as trendy as it was a couple of years ago, I do believe it’s here to stay. As Lending Club continues to fine-tune its lending process, returns should only improve. I currently have 138 notes, so even one default significantly impacts my returns (my mom has a similar number of loans, just 4 fewer defaults, and over twice my return). Lending Club consistently touts the returns of investors with over 800 notes – and even those with 400 notes are doing pretty well. Of course, high (or any) returns will never be guaranteed, which is why I’d never put in money I actually need, or expect to earn anything but the most basic of returns.
How about you – are you still using Lending Club? If so, share your experience in the comments!