Lending Club

[OneDay]

Lots of good notes to fund on LC this morning, I funded four notes with an average interest rate of 26.5%, all had a credit score of 680 or better.

 

[Sunset]

Well it will be interesting to see if any default.

Have you used LC a lot before ?

 

[younginvestor2013]

Interesting. I have thought about trying a small amount of money in this.

I just browsed some possible loans to invest in, and I am confused. One loan I am looking at - they are looking for $13,550. Per Lending Club, it is rated an F. It has an interest rate of ~27%, yet the debtor has a FICO of 735-799, a monthly gross income of $6,250, and only a 13% debt to income ratio.

Obviously, that interest rate is amazing to receive as an investor, but why has lending club rated it an F? The debtor has a healthy monthly income, healthy FICO, and healthy debt to income ratio.....

 

[MooreBonds]

Lots of good notes to fund on LC this morning, I funded four notes with an average interest rate of 26.5%, all had a credit score of 680 or better.

they are looking for $13,550. Per Lending Club, it is rated an F. It has an interest rate of ~27%, yet the debtor has a FICO of 735-799, a monthly gross income of $6,250, and only a 13% debt to income ratio.

It's difficult enough to think that they can't get a loan from a bank for less than 20%....but even more difficult to think that they are willing to pay 26%/27% interest to an individual instead of merely putting it on their credit card balance. Surely even credit card interest rates aren't 26%? It signals to me that they fear the credit card companies coming after them more than Lending Club. No way I would believe a FICO score of 735-799, Debt/Income of just 13%, monthly gross $6,250, and willing to pay 24% over prime! There might be 5 plausible 'explanations' that are legit for why they are willing to pay 27% interest...but also 200,000,000 reasons why I wouldn't expect to get my initial investment back.

The very fact that they even have FICO scores (let alone 'reasonable' ones of 680 or better) means that they have had revolving debt histories with companies, and had access to such sources of funding in the past (whether a credit card or loan for a car/furniture/etc.) Why are they all of a sudden needing to get cash at such insane rates?

 

[OneDay]

I have 76 notes and growing, I have one of them delinquent right now. I'm sure I'll have my fair share as most all the notes I invest in now are over 20% interest rate. Oddly enough the one have delinquent is at 13%.

 

[Texas Proud]

I have 76 notes and growing, I have one of them delinquent right now. I'm sure I'll have my fair share as most all the notes I invest in now are over 20% interest rate. Oddly enough the one have delinquent is at 13%.

And how old are these notes

 

[jazz4cash]

How do they confirm income used to compute the debt ratio? I presume that ratio is monthly debt PAYMENTS/monthly income?

 

[highlow65]

Seems to good to be true, so i would be suspicious, I have played with lending club and have averaged just over 9% with defaults included, but have never loaned for near that rate. I only play with $$ on this, I don't really count on it, But I have been very happy so far. For me it is gambling not really an investment, but with a better chance than the casino.

 

[OverThinkMuch]

You should also take a look at the purpose of the loan, which will be something like "debt consolidation" (normal risk) or "medical debt" (very high risk, or used to be). Even better is to locate one of those data mining tools that let you view what a certain set of filters will do based on past data. May help you preview what can go wrong, and what filters can help.

 

[Sunset]

I'll admit I never have been involved in LC or any P2P lending site, but what is there to stop someone from simply lying about the purpose of the loan, their income, etc.

I can guess the FICO score is simply looked up, assuming the person used a real SS number.

 

[medved]

I have never used LC. If the borrower defaults, does LC exercise any remedies on your behalf? Or are you left to exercise remedies on your own, such as finding a lawyer in the place the borrower lives, filing suit on the note, then trying to collect a judgment, and hoping the borrower does not file bankruptcy and discharge the debt? Or as a practical matter do noteholders just walk away if there is a default?

 

[UpAnchor]

As regards P2P lending, I've always felt folks willing to truly pay those 20%+ interest rates are without peer. Or maybe not...

 

[rrppve]

I've stopped all P2P investing since the scandal at LC earlier this year. My entire LC portfolio has rolled off. Got decent single digit returns overall.
Given that LC is the most high profile P2P lender and had a real compliance problem, there are additional underlying risks to this type of activity that are not well understood by the investing public. For example, what happens in a bankruptcy of the entity. It is different for each lender, because their legal structures are different. Most institutional investors are now trying to buy only whole loans and not the slices that the public does to deal with these risks.


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[OverThinkMuch]

I have never used LC. If the borrower defaults, does LC exercise any remedies on your behalf?

They hand the note over to a collection agency, but pay a percentage of the note in doing so. The note may eventually fall to bankruptcy proceedings, where if any money is available some of the loss may be averted.

 

[RenoJay]

I invested in hundreds of LC notes, with about $250k, over a multi year period and the long term effective interest rate was ~6% with great payment in the early days and huge defaults later. I won't do any more unsecured lending. People will pay 8-10% on secured loans for real estate, cars, etc. so I don't see a need to trust anyone's good intentions when I can have real collateral instead.


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[rrppve]

I invested in hundreds of LC notes, with about $250k, over a multi year period and the long term effective interest rate was ~6% with great payment in the early days and huge defaults later. I won't do any more unsecured lending. People will pay 8-10% on secured loans for real estate, cars, etc. so I don't see a need to trust anyone's good intentions when I can have real collateral instead.

+1
I've used Peerstreet, but as I said above I've discontinued all P2P investments. The realty lending requires a larger per loan commitment, which makes it harder to diversify unless you're committing $50k or more.

 

[OverThinkMuch]

When I invested in notes on Lending Club, high income was a great predictor of loans getting paid without defaults. I had a list of criteria, actually, and worked smoothly except for two things that changed my mind. First, after a year or two the default rate turned out to be higher than predicted for some loans. Second, Lending Club opened up to major investors (I think hedge funds got involved?) and they simply bought up every note in sight. Which left me with no notes to buy, and seeing default rates higher than expected. So I stopped investing in new notes and just let existing ones pay off.

In my experience, the defaults caused about a 50% loss. So with only 1 in 25 notes defaulting, you're losing 2% of your return (-50% spread over 25 notes). And then Lending Club keeps 1% of both your principal and interest, and performance starts to look a bit expensive. So don't judge your Lending Club account by the notes you hold - take fees and defaults into consideration.

 

[karen1972]

I tried to do this and once I signed up I got a notification that I was not allowed to lend money by law because I live in North Carolina and North Carolina considers it.. I don't know what the wording was exactly but I'm guessing 'shady lending' so I could not invest. Anyone else have this issue? It was a little shocking given how prevalent this has become.

 

[Sunset]

I tried to do this and once I signed up I got a notification that I was not allowed to lend money by law because I live in North Carolina and North Carolina considers it.. I don't know what the wording was exactly but I'm guessing 'shady lending' so I could not invest. Anyone else have this issue? It was a little shocking given how prevalent this has become.

Around here Vinny has been lending out fairly regularly. You can tell who defaults on the loans as they limp pretty badly if they can walk.