What Is Your Lending Club Performance?

Posted by Home Morgage | Personal Finance | Sunday 20 September 2009 9:18 pm

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:

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.
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.

Do you have a financial question? Ask it now at Moolanomy Answers!