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Lending Club Investing: Good Passive Income Source? (Answer: NO)

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Mineralogic

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Mineralogic

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I'm starting think their business model is for people in pre-bankrtupcy ...

Gonna file bankrupt? WAIT! Take a loan out FIRST at Lending Club and live large one last time!!!

Thread title changed.



Damn! And here I thought my account was a shit-show.

yeah, no doubt, the quickness of some of the latepayments shows me tons of side walkers pre bankruptcy who knew what they were gonna do, used Lending Club P2P to find suckers like us to fund their premeditated BK shitshow

rates need to go much higher on here IMO
 

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fastbo

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Be careful ... I got into Prosper.com back when they were new. Maybe 06-08? I ended up losing 75% of my investment even though I invested in B or A or higher paper. Turns out, most borrowers were scammers. They'd file BK, know how to grab a few credit cards and earn a 650 credit score. You have no collateral, no security. Prosper makes money whether they pay or not...

It'll take some time for the defaults to come in but with time, more will default. For the first 12 months or so I saw few defaults, after about a year it was like every week another loan would default.

You can easily get a 10%+ return being a passive lender on real estate. Then you at least have some security... its not perfect but you rarely will see a 100% loss as you can with unsecured debt. Even with a systematic market crash, many markets only lost 30% of value... and if that happened you can probably expect a 90+ default rate on unsecured debt.

I developed absolute criteria based on internet research (taken with a grain of salt, of course) and sensibility (in my opinion). I only invest in loans where the recipient:

- Has not had any recent delinquencies
- Has not had more than 3 credit inquiries
- Has a job (though this information is unverified)
- Is refinancing a loan (which, in my opinion, is more likely to be successful than say, starting a small business)

I've been experimenting with loan term and interest rate.

Here are my statistics so far:

I've invested approximately $7k so far over a 6 month time span.

Loan Term
- 60 month loan term: ~60% current (meaning that the other 40% has either defaulted or is late and will likely default)
- 36 month loan term: ~95% current

Interest Rate (only measures 36 month loan term)
- A-D: 100% current
- E-G: ~90% current

As I said though, I've only been doing this for 6 months. Many of the notes are more recent than that (since I only invest in a note when I see one that I like). So it's possible (and likely) that these numbers will worsen over time.
 

RedKiteKid

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Seems a lot of people here have been burnt by Lending Club and therefore written off P2P as a whole.

My experience with Funding Circle (UK) and AssetzCapital (UK) has been much more positive. Both of these lend to businesses rather than individuals so the rates are better than I can get lending to individuals in the UK but also the default rate on my diversified loan basket doesn't seem to be anywhere near as challenging as experienced in this thread.

I've been lending through FC for over three years and am still tracking at 10.7% gross / 7.7% annualised. Loans are unsecured but some of what FC skims off the top goes into a find to cover bad debt and recoveries, about a third of my defaults have been repaid in recovery. It also has an automated investing option so I have just set it at minimum investments and left it to rollover, it can take a little time for new funds to be picked up but when you are just reinvesting returns it ticks along nicely.

AssetzCapital is tracking at 9% and is again business loans, the loans are fully secured against various securities and again defaults seem low compared to experiences in this thread.
There is no automated investing tool so you have to manually select loans and this can lead repayments to build up if you are not on top of your investments. However, they currently pay 3.25% on uninvested funds and offer a 4.25% 30-day notice account - so as well as a portion of actual lending I am also holding short term funds in Assetz whilst waiting for the capital to accrue for other investment purposes. I assume these funds are managed behind the scenes to improve investment and liquidity in the actual loan markets which only seems a good thing to me.

[Full disclosure: I have a tiny (like less than 0.00001%) Seedrs investment in AssetzCapital, but the whole reason I have it is because I genuinely think they kick a$$]
 

fastbo

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How are you underwriting (qualifying) your loans?

I think one of the flaws with Prosper and other US based personal loan sites is that they do not properly underwrite their loans.

People with true 750+ credit scores don't borrow from these sites. Look at the reasons why they're borrowing. They fall into 2 categories: debt consolidation which means they can't manage their money and are offering to manage yours and hardships which means they are living paycheck to paycheck and don't have a rainy day fund.

What are reasons you as a successful person borrows money and compare that to these needs? I borrow lots of money because I invest in an asset that provide an arbitrage opportunity (income stream greater than cost of loan)

Your experience with these business crowd funding sites are interesting. I would still recommend being cautious as usually defaults come in waves. If they properly underwrite business - say requiring 2 years of business, tax returns, analysis of financial reports, then that could be a viable option. The different between business and personal lending is that businesses can generate a tremendous return on capital due to growth so businesses that are growing are willing to pay high rates... in the US for example many lenders will lend you on your net30 receipts and credit card receipts and often charge 13%+. Still, businesses experience a high risk of failure so I would recommend finding out what your banks use to underwrite loans (go in and ask them what's required to get a business loan) and apply those same standards to your loans.

Also key to remember that just because you only invest $25 doesn't mean your risk is lowered. You have to be willing to lend the ENTIRE amount to that loan. The reason is your risk is diversified over many assets but each asset has the same risk no matter how much you invest. If you lend $25 x 1000 bad loans, it's no better than $25,000 to one loan.

Seems a lot of people here have been burnt by Lending Club and therefore written off P2P as a whole.

My experience with Funding Circle (UK) and AssetzCapital (UK) has been much more positive. Both of these lend to businesses rather than individuals so the rates are better than I can get lending to individuals in the UK but also the default rate on my diversified loan basket doesn't seem to be anywhere near as challenging as experienced in this thread.

I've been lending through FC for over three years and am still tracking at 10.7% gross / 7.7% annualised. Loans are unsecured but some of what FC skims off the top goes into a find to cover bad debt and recoveries, about a third of my defaults have been repaid in recovery. It also has an automated investing option so I have just set it at minimum investments and left it to rollover, it can take a little time for new funds to be picked up but when you are just reinvesting returns it ticks along nicely.

AssetzCapital is tracking at 9% and is again business loans, the loans are fully secured against various securities and again defaults seem low compared to experiences in this thread.
There is no automated investing tool so you have to manually select loans and this can lead repayments to build up if you are not on top of your investments. However, they currently pay 3.25% on uninvested funds and offer a 4.25% 30-day notice account - so as well as a portion of actual lending I am also holding short term funds in Assetz whilst waiting for the capital to accrue for other investment purposes. I assume these funds are managed behind the scenes to improve investment and liquidity in the actual loan markets which only seems a good thing to me.

[Full disclosure: I have a tiny (like less than 0.00001%) Seedrs investment in AssetzCapital, but the whole reason I have it is because I genuinely think they kick a$$]
 
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RedKiteKid

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In general I've used diversification as my main defence against bad debt rather than qualifying the loan myself. My rationale being that I dont have a crystal ball and wouldnt know where to start. On funding circle I hold loans from all five credit ratings and across various timescales, and I use their automated investing which is essentially 'just give me whatever's available when I build up my next £20 chunk'.
Assetz don't have automated lending so I have been forced to retain a little more control, but I still broadly diversify only allowing a little prejudice into avoiding 'cash flow loans' that are to cover outstanding tax payments or the like which just stinks of bad money management to me.

My first year was great and I hardly saw any defaults but they do seem to bite during the second year and then settle down a little again after that.

"Defaults come in waves" Your post definitely gets me thinking about an economic downturn though. If 20% of my loans defaulted at this stage of be back to where I started. Could that happen in a downturn? Quite possibly. If 20% defaulted just after I'd first deposited would I have quite such a rosy view of P2P or would my experiences be more aligned with others in this thread? Very likely.

You have given me food for thought good sir.

How are you underwriting (qualifying) your loans?

I think one of the flaws with Prosper and other US based personal loan sites is that they do not properly underwrite their loans.

People with true 750+ credit scores don't borrow from these sites. Look at the reasons why they're borrowing. They fall into 2 categories: debt consolidation which means they can't manage their money and are offering to manage yours and hardships which means they are living paycheck to paycheck and don't have a rainy day fund.

What are reasons you as a successful person borrows money and compare that to these needs? I borrow lots of money because I invest in an asset that provide an arbitrage opportunity (income stream greater than cost of loan)

Your experience with these business crowd funding sites are interesting. I would still recommend being cautious as usually defaults come in waves. If they properly underwrite business - say requiring 2 years of business, tax returns, analysis of financial reports, then that could be a viable option. The different between business and personal lending is that businesses can generate a tremendous return on capital due to growth so businesses that are growing are willing to pay high rates... in the US for example many lenders will lend you on your net30 receipts and credit card receipts and often charge 13%+. Still, businesses experience a high risk of failure so I would recommend finding out what your banks use to underwrite loans (go in and ask them what's required to get a business loan) and apply those same standards to your loans.

Also key to remember that just because you only invest $25 doesn't mean your risk is lowered. You have to be willing to lend the ENTIRE amount to that loan. The reason is your risk is diversified over many assets but each asset has the same risk no matter how much you invest. If you lend $25 x 1000 bad loans, it's no better than $25,000 to one loan.
 

mtnman

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Pretty sure this platform went to shit when they stopped allowing you to offload notes in initial default. That was the only saving grace keeping my returns over 11% on a small allocation, but enough spread to diversify. I think I have less than $2k in the account now, and there are defaults left and right.

If you simply rely on their robo-advisor to allocate your notes without doing any due diligence on the triggers that indicate some sort of metric (albeit unreliable: own vs rent, defaults, etc...), you are F*cked.

The problem with this is it becomes too labor intensive, even if you have a script/bot do it for you you have to watch it like a hawk, and now you can't sell off notes for a slight loss automatically if they're late 1 day. (which is what I was doing... recoup, reinvest, etc... stupid game in hindsight, should've just focused on generating more income, left the money in savings and let inflation chip away at it, until I had a more meaningful opporunity to hit a home run with it instead)

I think in the very beginning, there are a handful of people that made bank. But times have changed, and I'm surprised people like Mr Money Mustache still recommend Lending Club. (although I can see how it would be hard to turn down $50k/mo, but no one mentions that "frugal" part if you know what I mean. haha)
 

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Pretty sure this platform went to shit when they stopped allowing you to offload notes in initial default. That was the only saving grace keeping my returns over 11% on a small allocation, but enough spread to diversify. I think I have less than $2k in the account now, and there are defaults left and right.

If you simply rely on their robo-advisor to allocate your notes without doing any due diligence on the triggers that indicate some sort of metric (albeit unreliable: own vs rent, defaults, etc...), you are F*cked.

The problem with this is it becomes too labor intensive, even if you have a script/bot do it for you you have to watch it like a hawk, and now you can't sell off notes for a slight loss automatically if they're late 1 day. (which is what I was doing... recoup, reinvest, etc... stupid game in hindsight, should've just focused on generating more income, left the money in savings and let inflation chip away at it, until I had a more meaningful opporunity to hit a home run with it instead)

I think in the very beginning, there are a handful of people that made bank. But times have changed, and I'm surprised people like Mr Money Mustache still recommend Lending Club. (although I can see how it would be hard to turn down $50k/mo, but no one mentions that "frugal" part if you know what I mean. haha)

Who dat? Mntman is back?:)
 

MJ DeMarco

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mtnman

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MJ DeMarco

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At this point, I will be happy breaking even and getting all my cash back.

From the current trend, it looks doubtful.

Freaking Sidewalker paradise....

In the flesh boss, how the hell are ya!?

Peachy.
 

Alexlewter

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I have enjoyed LC so far. I like the fact that they provide the loan data, which are quite useful to device investing strategies. I wish LC disclosed more information about the borrower's job descriptions, which I find it quite useful for investing.
 

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Alexlewter

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I thoroughly like investing in Lending Club and peer-to-peer lending where I can earn a higher rate of return than many other investing options and definitely higher than a savings account or money market fund.

I have been investing with Lending Club for almost four years now, and it has truly been a great experience that I would highly recommend to others who are looking for a greater rate of return on their investments than others.
 

MJ DeMarco

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Basically a 10% default rate.

Now I'd be happy losing just a few %.

Screen Shot 2017-10-16 at 12.20.56 PM.png

What a waste of time and money -- not so much the money, but I've probably wasted a few hours of my life (in aggregate) on this shit.

I'd close the account, but I still have 121 notes waiting for their eventual default. :hilarious: And I refuse to give it any more seconds of my life.
 

G-Man

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Basically a 10% default rate.

Now I'd be happy losing just a few %.

View attachment 16695

What a waste of time and money -- not so much the money, but I've probably wasted a few hours of my life (in aggregate) on this shit.

I'd close the account, but I still have 121 notes waiting for their eventual default. :hilarious: And I refuse to give it any more seconds of my life.

You couldn't close it even if you wanted to. I've tried. That marketplace where you supposedly can sell your notes in their sort of secondary market is total bullshit to give the appearance that you have an iota of liquidity. I couldn't sell anything without taking a huge discount, so I figured I might as well just take the default rate and be grateful that I didn't have enough money in there to make a difference in anything else I'm doing.
 
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SJMM

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Theres a company called upfund.io that lends money to vetted amazon sellers. The payment terms are good. The duration of the loans are 4-5 months and the average returns are good in my eyes. I started earning over 10% but now its decreased to about 7-8% because its getting more popular. The money is given to the seller. The seller uses it to buy inventory and when the inventory hits AZ and the seller starts getting paid, we start getting paid as well. We get paid priciple and earnings in 4 payments spread out over the life of the loan. I have invested a small amount and I have it in auto pilot now where the money is being reinvested for me now so my profits are making profits. I get charged a small fee and the AZ seller gets charged a fee also. Check them out. Its fairly new and they have a really good vetting system. I have invested in more than a dozen and only one has defaulted and they paid me all of my principle back. I think its a good option for investing short term. Your money is not tied up for so long like in LC. I too had a lot of defaults with the small amount of money I had invested amd I am just waiting to take out whatever is left. I am not affiliated with Upfund at all. I like it because I am earning way more than what i would be earning at the bank.
 

Mr.Brandtastic

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Like a dummy I invested in one $25 note at a huge interest rate, just to wait and see. The person had a high interest rate but no defaults. That's $20 I'll never see again that's for sure. Very cheap but good lesson though.

The problem with Lending Club is good returns, no control, hard to get rid of (have to manually dump shit loans and get lucky), and high risk. High risk, decent returns is a bad trade.

If I'm taking high risk, I want high return. The upper cap potential on earnings handicaps you. You're not paying for someone's business dream from a person with a proven track record of success. You're paying to re-finance their credit card bills and for them to add an addition to their house. Does this sound like someone you want to give money to?

I also wonder how many are just straight up scammers are on this website?
 
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amp0193

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Theres a company called upfund.io that lends money to vetted amazon sellers.

While I'm not going to invest in this, I can appreciate their business model and unique angle.

If FBA is the gold rush, then Upfund is selling the shovels in a way that I had never even considered. Good thinking outside of the box on their part.
 

DaveC

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This is definitely interesting....after a few years of on-time payments from my loans at Prosper, I have 3 delinquent out of 9 now. I saw some similar issues back in 2009/2010. Probably not enough data to infer anything right now but I think we are probably back into a credit bubble of some sort.
 

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We offer locals a chance to fund our amazon Christmas inventory. They get better than bank rates, we can use our money to buy other businesses, and it primes them for future bigger deals. People tell their buddies..... suddenly more people are asking if you would consider letting them invest.....
 
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G-Man

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I've discovered that to sell Lending Club notes on their secondary market site, you need to be at about 2% off remaining principal plus accrued interest. It even works for notes that are in grace period.

Even with selling the notes, the return comes out to 3-4%, and I won't have to endure another 18 months of watching people default.

I previously failed at selling on the folio site, but it was because I wasn't discounted enough, and didn't cancel and renew the listings often enough. The notes that don't get sold in the first 12 hours probably won't get sold, so just cancel then re-list.
 

fastbo

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If you want to lend money dont use one of these P2P sites. The problem is the P2P lenders are clueless about credit risk and these loans are unsecured. Therefore, you're bidding against clueless people who think 7% is a good return for unsecured debt with poor underwriting, a recent BK, and no income.

Furthermore you can't view the actual underwriting docs. Do you know someone can dispute a BK, foreclosure, or charge off, then during the dispute process it can't be part of the score? So that person will file a dispute and within 30 days their score will jump up while they apply for these types of loans. That's how you find people with AAA credit that defaults in 6 mo. True AAA credit doesn't default, ever. But true AAA isn't applying for Prosper loans, they could go to Bank of America and get a signature loan at top tier rates.

The truth is, Prosper is sub-prime financing and you know where that ended up.

If you're serious go to a real estate club and hook up with a private lender. They lend money out at 10-13% plus 2-4 points to real estate rehabbers. They earn the points and the private lender earns the rate. A good one will have made hundreds of loans with dozens of money partners. They will explain underwriting criteria - usually 65% of value so you have an equity buffer. The loans are typically paid off in 6-12 mo and then you lend it out again. Your money is secured so it will never go to zero. Yes if there's a systemic event like a housing market crash you will lose money but not 100%... whereas if there's a systemic event your prosper loans will most likely go to zero.

I've active in this space and as a lender/investor I will earn 13-15% since I have my own capital.
 
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ljean

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Check out the website of ljmparters.com for some really good data on options writing performance over a long stretch of time.
This $800M fund had an 80% draw down this week. They were profitable 81% of the months over the past 15 years with a Sharpe ratio near 1.0. This is the risk of option writing with leverage over the long run.
 
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lludwig

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This is a long thread and haven't read every single post. Sorry if I repeat anything already said.

When I created my site Investor Junkie, Lending Club in fact was the first I reviewed.

Lending Club for Investors Review 2018 | Still a Good Investment?

I started with the service in 2010 and invested actively till 2015. During that period I documented around 10.50% NAR or around 9.5% return. At my peak I had a little more than $25k invested.

I got out in 2015, because I knew rates were on the rise and other investments would become more attractive. It also seems during this time Lending Club wasn't as good with loan origination. I also felt they mispriced some notes and invested in the ones not accurately priced during this time.

I thought my 5 year run more than proved Lending Club was a viable service. Though of course had it's issues.

From the recent comments on my review, it seems many had issues around the time I started exiting Lending Club.

Recently Lending Club offered me $5k to update the review and note my progress in their service if I invested new money. I am completely able to state anything I want about the service and has no strings attached. So for since Jan 2018 (granted it's not a lot of time yet) but getting 10.5% NAR returns. I suspect this will go around the 8-9% range.

The issues with both Lending Club and Prosper are:
  • Lack of liquidity. Hard to exit and should be a long-term investment
  • Must constantly actively search for new notes. This isn't a passive investment and requires a least a few hours a month to review existing and new notes to invest in.
  • As rates rise other investments that will earn similar returns for little or no work
  • Income is taxed as ordinary income
  • The secondary market for Lending Club is just ok, but at least improved since I first started.
  • The next recession returns will be substandard.
  • Unsecured debt so they can just stop paying and only recourse is a bad credit score.
If you have any questions about these services let me know.
 

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True AAA credit doesn't default, ever. But true AAA isn't applying for Prosper loans, they could go to Bank of America and get a signature loan at top tier rates.

The truth is, Prosper is sub-prime financing and you know where that ended up.

I love your reference to AAA - excellent advice! Thanks for posting.
 

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