Friday, October 10, 2014

Three Months Later with Lending Club: I've Broken Even!

This was the screen that greeted me when I logged onto my Lending Club account tonight.  If you have been following this series of posts, you'll notice that Lending Club has changed its front screen and the way it reports earnings.  What you see there is what they call my "Combined Return", the return I'm earning when you look at both the notes I bought new and the notes I bought on the resale market.  As a reminder, I started this account on July 10, 2014 with $1,000, and a month later I added $1550, for a total investment of $2550.00.  8.18% of that would be  $17.38 per month.  As of a month ago I had $22.09, and if you add those together you get $39.47.  Obviously, but looking at the chart above, I've earned more than that. It just goes to show how hard it is to track/calculate your returns with this investment.  However, the bottom line is that I invested $2550 and my account value hasn't quite reached that point yet--but on the other hand, this is doing far better than the stock market has lately.

So, what's happened in the last month?  Well, one note I bought new was late paying (but still within the grace period).  Since this was the second payment and since the collection notes said they were unable to contact the borrower, I got nervous.  Most of my $25.00 was at risk and I didn't want to lose everything.  I decided to mark the loan down and sell it.  I probably marked it down too much, but I got $12.50 for it and now it is someone else's problem.  Of course it went current shortly after I sold it.  Such is life.  I also had a $2.77 note that was 15-30 days late.  The payment record on that loan had been bad for some time (lots of grace period payments or skipped payments) and honestly I don't remember why I ever bought it.  I managed to get $1.00 for it so I consider myself lucky.

I had several loans pay off early, and in two cases the amount of money I received was less than the amount I had invested in the loan.  In one case I bought a note for $23.70 and only got back $23.15.  The note was about a year old when I bought it and it had four years of payments left.  The interest rate was 25.83%.  I paid a premium for the note, but since the yield to maturity was over 20% I didn't worry about that.  I purchased another note at $9.30 which also had about four years to go, at 19.47%.  I only got 9.22 for it.  Besides any premium paid, the other thing that hurts lenders on an early payoff is Lending Club's 1% fee on payments received.  If the value of the loan when I bought it was $9.30 and the borrower paid it off the next month, Lending club would charge me 9.3 cents, which really hurts in that case.

Since I do not plan to invest any new money, unless I get another deadbeat (and the reality is that they are to be expected and are the main risk with this investment) I should pull ahead in the next month.  So far I haven't had any defaults on my high interest loans or on the small dollar ones I'm churning through the account to see how it stacks up against a savings account for at least some of my needs.

I'll let you know next month if I've made it into the black.

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