What is Your Lending Club Performance?

It has been a while since I write about Lending Club. I haven’t written about peer-to-peer lending, because there hasn’t been much to write about except for the chance to win $2,500 from Lending Club. Otherwise, I am still an investor on both Prosper and Lending Club, and I continue to buy more notes when I can. However, I’ve seen a few blogs touting the high returns they are getting. This prompted me to write this post, and ask my readers how is your Lending Club investment portfolio performing?


A Brief Introduction To Lending Club

I wrote an introduction to peer-to-peer lending a while back. In a nutshell, a group of people gets together via websites like Lending Club. Those with money to invest, lend money directly to those who need money — e.g., lenders and borrowers, respectively. For this service, Lending Club charges both the lenders and borrowers small fees. In any case, the whole process is more cost effective than going through a traditional bank. For instance, you can get a personal loan for as low as 7.89% and invest for an average annualized return of 9.65%

My Lending Club Performance

Currently, my Lending Club net annualized return is 2.49% and I’m thrilled. I am happy because it used to be in the negative, but it has turned around and is currently performing better than even the best high interest savings accounts. And as far as I can tell, it continues to improve.

You won’t find too many articles about peer-to-peer lending risks. But you should be aware of them before you invest. My portfolio went into the negative for two reasons:

  1. Default risk – When I started, I went for some of the lower credit grade loans to grab higher interest rates. When the credit crisis hit the U.S., a few of these borrowers stopped paying their Lending Club bills. When borrowers stop paying, I lose money.
  2. Small portfolio risk – One way to minimize your default risk is to invest in a lot of loans. Right now, Lending Club default rate is about 3%. This means if I invest in 100 loans, the chances are 3 of them will default. When I started, I only had about 20 loans and two of them defaulted. This means I suffered 10% loss right off the bat.

What Is Your Lending Club Performance?

So how is your Lending Club investment doing? I hope you’re closer to the current average return rate of 9.65% than I am. If you have a weak portfolio like I used to, I suggest that you add some more money to your account so that you can properly diversify down these risks. If you haven’t tried Lending Club yet, now you know a bit more about the system and how to properly start your peer-to-peer lending career.

About the Author

By , on Sep 20, 2009
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (29 Comments)

  1. Mike says:

    I am closing in on two years experience with Lending Club. Although I am no longer adding dollars to these accounts, I thought I would update things at this point.

    In my taxable account, I hold just under 200 notes that average out at $57. I’ve had 15 loans paid off in full, I have no lates and two defaults that total $83. 88% of my loans are in the A, B or C categories. I sold $1150 worth of loans on the trading platform. My return, inclusive of fees and the two defaults is just a shade over 10%.

    In my IRA account, I hold just under 500 notes that average out at $60. I’ve had 33 loans paid off in full, 1 late (16-30 days), 4 lates (31-120 days) and 7 defaults that totaled $518. I’ve sold $885 worth of loans on the trading platform. My return, inclusive of fees and the seven defaults is 8.7%. In this account, 87% of my loans are in the A, B or C categories.

    My current strategy for both accounts is to bump up returns a bit by investing in the 60 month notes, which carry higher interest rates and lower expenses. I am also dipping my toes into the lower grade loans, but only if they meet my criteria of no delinquencies, good income stream and steady employment history. I no longer invest in loans for medical expenses, as this is the number one cause of bankruptcy in this country. I no longer invest in A’s since Lending Club reduced the interest rates on that tier. I’ve noticed a lot more A loans have not fully funded. I suspect most people have figured out that a 5 or 6% return on this type of investment isn’t worth the risks involved. Investing in Lending Club shouldn’t be compared to an online bank like ING, because the risks are much higher. A better comparison perhaps is to junk bonds, which also have a possibility of default, unlike bank accounts. This past year, I think many people did much better in the equities market than they did on Lending Club. That was certainly the case for me. Who knows what’s in store for 2011, though?

  2. Charlie says:

    I’m in 11 months now. Put $5k in last Dec. and another $5k in June. Return is shown as around 13% but I have 3 16-30 day lates that are not factored in yet. Supposedly months 12-18 are the worst. Anybody have experience through and past those months?

    • Pinyo says:

      @Charlie – I had a rough patch with late and delinquent loans about 6-12 months into the program, but haven’t have any more since. The first year was negative because of these bad loans, but I am now doing better with P2P than other investments.

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