Sunday, June 23, 2013

Lending Club update

I think this is my first official Lending Club update. Here's where I stand:

Don't be alarmed by the -57% net annualized return (NAR). When I started with Lending Club I purchased 8 defaulted notes on the secondary market for pennies on the dollar. I think I spent around $22 in all. Since then, all have been charged off. That's what I get for being trigger happy at new opportunities. I bought around $300 worth of debt at 90-95% discounts, when in reality the discount needed to be 98%+. This is a good lesson, which I take as: don't invest in things you don't (fully) understand. I should mention that at the beginning I was looking at over -90% NAR, and that has crept up over the past few months as interest has rolled in.

I've made $31.84 so far in interest. I don't have many notes — only 64 so far — but that's enough that every day or two I have another few dollars in my account.

My investment strategy is as follows:

I transfer cash into my account when I decide it's time to invest. This is usually in amounts of $100 to $500. I'm taking things slow while I'm liquidity-constrained in the early days of building my stash. Most recently, $300 cleared on June 20th, and I've been working to get it fully invested. (That explains the $167.59 in available cash and $175 in in-funding notes.)

When I have cash to invest, I need to choose which notes to fund. Since I don't have much cash I can afford to be relatively picky. The filters I use are: 36-month term, and home ownership of "Mortgage" or "Own". I use home ownership as a proxy for lifestyle stability though I admit this is a bit of a stretch.

I only fund notes from people who have answered a few questions, and I have to like the answers. Not many people ask questions, and notes get funded quickly nowadays, so I have two strategies.

My first strategy is to look at notes that will be funded soon. I sort by "% Funded" (so soon-to-be-fully-funded notes are at the top) and look at each loan until I find answered questions. If I get lucky and find someone who has answered some questions, I see if their answers sound thoughtful and I fund the loan.

My second strategy is to ask my own questions. For this I sort by "% Funded" again, but in the other direction (so the loans at the top are far away from being fully funded). Then I go through each and ask a bunch of questions — they're in a list with a radio selector, and you have to submit each separately. My personal favorite is "Please explain the reason why you carry a large revolving credit balance." I often use the questions asking for a detailed breakdown of monthly expenses, credit card payments per month, and what loans they will pay off.

I usually have the patience to go through one or two pages of notes at a time (the default is 15 loans per page). After firing off questions, it's time to play the waiting game. Lending Club emails me when questions are answered. Then I read through the answers and decide if I want to fund the loan.

I have had one loan that became late. Since then the borrower has paid the loan so that it's current. I'm very happy with this turn of events. Also of note, my very first payment on a note was for more than the minimum — good for that guy!

I've really enjoyed reading about what people want to do with their loans. Many of them are for refinancing credit card and other high-interest debt. Sometimes they have names like "paying off credit cards" or even "Final Credit Card!!", which makes me feel good.

I've been very happy with Lending Club so far. I especially like that, now that I've been doing it for more than a month and I have a few dozen notes, I can see compounding happen on a daily basis. This is how wealth is built: one day at a time.


  1. Good Strategy. I also started investing in the Lending club, I made also mistakes but are learning from it one at a time.

    1. I'm interested to hear about your mistakes. Keep learning and maybe we'll both make some money :)

  2. This is awesome. I've been thinking about doing Lending Club and its nice to get this insider perspective.

    1. I'm hardly an insider but I appreciate the compliment. If you choose to invest, I hope you find Lending Club as fun as I do.

      I like the blog you're running! Keep it up.