Lending Club Update – February, 2013

Lending Club Update – February, 2013

It has been a long while since my last Lending Club update. I am happy to share only good news as my social lending experiment moves forward.

Last year, I decided to build my Lending Club portfolio faster by automatically depositing $25 from each paycheck. My portfolio has certainly grown and I now have enough loans to add a new one each month from my lender payments.

Here is my current portfolio summary:

Lending Club Update – February, 2013

Loan Summary

I have made 39 loans so far, and 9 have been fully paid or paid early. I have 30 loans outstanding and all are issued and current. No loans are currently late and none have defaulted.

What excites me most about Lending Club are my consistent positive returns. One bad loan would be devastating to a portfolio this small, which is why I am trying to build it faster with 26 monthly deposits. I call this the social lending snowball.

Lending Strategy

From my time working in a bank, I know the biggest risk factors on a credit report. I review each loan I make individually and only choose the best loans. I am a stickler for low revolving debt balances, low revolving debt percent used, and late payment history.

Based on my strict guidelines, I am able to choose loans that are lower risk and better investments. Over time, I have relaxed my guidelines a bit to bring in higher-interest loans. Right now, I have 4 A-grade loans, 11 B-grade loans, and 15 C-grade loans. Over time, I will likely gravitate more toward C-grade and D-grade loans as my portfolio grows.

Making Social Lending Work for You

The key to doing well with lower grade loans is to have a lot of them. Just like banks spread around risk by building a big portfolio, as social lenders it is important for us to as well.

I don’t advocate making social lending the bulk of your investments, but I do suggest readers follow my lead and give it a try. If you deposit $500 to start, you can make 20 loans to distribute your risk. If you can’t afford that, you can start like I did with as little as $25 or $50.

Unlike stocks and mutual funds, you can’t quickly and easily sell your loans and walk away with the cash, so you have to treat these loans more like a CD with a cash flow. Your money is locked in until the loans are paid back. (There is a system to buy-sell on a secondary market, but it is not as easy as selling a stock.)

Give it a Try

If you have read about social lending before and never tried it, what are you waiting for? It doesn’t take a lot to get started, but the long term benefits are big. I have accounts at both Lending Club and Prosper and recommend either site. Full disclosure: I have most of my loans at Lending Club.

Let me know what questions you have in the comments below.

Image by marubozo / flickr

Comments

  1. says

    I want to invest via Lending Club or Prosper, but my state has a cease-and-desist letter out and no one can invest directly using Lending Club. I have to trade notes, which is something that I really don’t want to do.

    • says

      I hate when governments get in the way of people doing what they want with their money. Lending Club just added a new state last week. I bet if you stay patient long enough, they will make it to your state.

  2. says

    Nice start to your peer-to-peer lending snowball! I personally love the concept of peer-to-peer lending, and have been lending for coming up on four years. Recently rolled 10k into a Roth IRA account, and am eager to see how much that accelerates my growth. Good luck with investments and changing criteria!

  3. Sam Kim says

    I did trade my notes last year because I needed more money to buy my own house for the first time. I wouldn’t really recommend trading them because you lose your profit with 1% trading fee but that was good experience. One funny thing was that I had one note that was almost going to default (late in payment for about 100 days or so), I put it in the market with way cheaper price like $10 for $24. It was sold! I was quite amazed who did that but on the other hand, if this was recovered, it would have been good investment I think.

    • says

      I have never sold any of my notes, but I did sell a bunch of stock investments just before buying my condo about 18 months ago. I had been investing for a big event, and buying a first home qualified by my book!