Dec
Review of My First Loans with Lending Club
New here? You may want to subscribe to the RSS feed or browse the site map. Thanks!
I extended my first $400 worth of loans with Lending Club on Sunday night. I intended to lend $500 but could not find enough people that I wanted to extend credit at this time. I decided to give a quick report of what worked well and what could have been better about the my first Lending Club experience.
Update: I posted a video of the Lending Club Loan Portfolio Creation Process and many of these suggestions were added in the January 2007 Lending Club update.
The Good about the Lending Club Experience
- The Lending Club website was easy to use and understand — including the pie charts in the portfolio tool.
- The loan portfolio function was an easy way to start with a potential group of loans.
- It was reasonably easy to change the portfolio before purchasing by adding and dropping loans.
The “Could have been Better” List
- Lending Club did not seem to have a very large pool of borrowers. I could not even find enough decent loans to put $500 in a well-diversified portfolio — meaning $25 per loan. I extended a handful of $50 loans and my last $100 was not used. This will leave 20% of the money invested in Lending Club idle for at least another week while I try to find loans.
- To earn a return of anything over about 8%, you must quickly drop in credit grades. If you look at the pie chart for a portfolio with a risk score of 1 of 5, all the loans are class A and B borrowers. With a risk score of only 1.5 out of 5 points on the portfolio rankings, approximately 60% of the loans (estimation based on graphic) are grades D through G and A is not included at all. That is a large difference for a potential difference of 4% in return.
- Not enough information to quickly filter out poor credit risks on the list of loans available. Very few fields appear on main portfolio review page to quickly delete bad potential loans.
- Titles of loans are very similar making it difficult to remember which loan details you were examining when you move back to the main portfolio page.
Ideas for Improving the Lending Club Loan Selection Process:
- The site should allow you to select what additional fields to show on the portfolio review page. For example, credit inquiries and credit utilization would have been very helpful to add to the review without needing to drill into each detail page. I could have eliminated several loans very quickly — one person had 25 recent credit inquiries!
- When searching for loans in the portfolio, the search returns loans already in your portfolio. I think that this should be an option to turn on or off. I imagine most people want to search to add potential loans that have not already been added.
- More descriptive titles of the loans — maybe this is the fault of the borrowers rather than the site, but it almost seemed like the titles were selected from a drop down list. When looking at a long list, they became difficult to distinguish by much more than the dollar amount of the loan.
- Let me add a loan to an existing portfolio. I browsed the site again tonight and found one loan to fund, but it seemed ridiculous to have a portfolio with one loan, so I did not bother funding the loan.
Verdict on First Lending Club Experience
I am not as excited as I expected to be about my first lending experience with Lending Club. The list of the potential loans to fund seemed too small and my estimated return is only slightly above 9%. I need to take on more risk to make more money, but right now I seem to be more afraid of the credit risk than enamored with the potential return.
My current portfolio will not beat the stock market on average. Purchasing $500 of the total stock market index would be a much better investment because it is more diversified, contains less credit risk, and is more tax efficient. Additionally, Lending Club loans are less liquid than an investment in a stock index. At this time, I classify my first loan portfolio as an experiment rather than a rational investment.
lending, investing, lending club, review
Photo by Jef.
Technorati Tags: lending, investing, lending club, review
I found similar inadequacies… have had loans for a month on LC I am now finding a lack of account statement information… I remain committed to getting $1250 ($25 would = 2% of portfolio) into LC, but I am going to wait for the next release before going beyond my initial $350…
I have over $11K in Prosper. And I still consider it an experiment.
[...] post at PersonalLoanPortfolio the first experiences of a lender at Lendingclub.com are given. The author says the Lendingclub [...]
[...] credit card debt — $2,200 per person. With debt statistics like that, why can I have trouble finding someone to extend a loan to at Lending Club. [...]
[...] Loan Portfolio Experience in P2P Lending on Prosper and Lending Club « Review of My First Loans with Lending Club Congress Examining Credit Card Practices [...]
Thank you for sharing your experience as a lender and providing feedback and ideas for enhancements. Our team is hard at work solving the 4 issues you have identified. We have also significantly increased our marketing to borrowers in the last couple of weeks and reached 80 active listings this morning (up from 50 early last week), which will help offer more choice to lenders. The average net return of all lenders on the Lending Club marketplace has been 12.2% after fees and losses so far (6 months of data). Please keep in mind that even the riskiest loans on Lending Club still are above 640 Fico and less than 30% DTI. We’re considering changing our A-G scale to make it more easily comparable to other markeplaces, what do you think?
Best, Renaud
Renaud Laplanche
CEO, Lending Club
Renaud, Thanks for stopping by and commenting. In fact, one of the reasons that I posted my feedback is because I actually do believe that Lending Club will listen and take action.
I agree that your A-G scale is difficult to compare to other (ie Prosper) risk scales. However, I think it is because I became familiarized with Prosper’s scales first. I realize that your C is a much better risk than a Prosper C, but I think I was still keeping the Prosper default rates for a C loan in the back of my head. Could you display the person’s FICO score or is that not allowed?
I went back tonight and added a new portfolio with more risk using the $100 that I had left. I took on one C, two Ds, and one E. This portfolio has an average return of over 12% and brings my weighted portfolio average up to nearly 10%.
By the way, another issue that I noticed is that if I ask a borrower a question, they can ignore the question. There are a couple of loans with terribly high numbers of recent inquiries which is an indicator of issues, but several of the people that I ask about this are simply ignoring the question. It would be nice to know the number of unanswered questions.
[...] to make a quick check list to determine if this is the correct choice. UPDATE: I have made my first Lending Club Investment and collected P2P Lending advice for new lenders from several [...]
[...] If you’re new here, you may want to subscribe to the Personal Loan Portfolio RSS feed or take a look at the site map. Thank you for visiting!Late night web browsing brought me view Rate Ladder’s first Lending Club portfolio. He posted some good suggestions for improving Lending Club as I think I did on my review of my first loan portfolio with Lending Club. [...]
[...] and invest in a total stock market index fund. I have already admitted that I believe that a total stockmarket index fund is superior investment to P2P loans. I have already invested in Lending Club loans, but not Prosper or Zopa loans. Therefore, I would [...]
You are correct that we cannot display a borrower’s FICO score directly. However, we are already discussing enhancements where we can make the “credit score” element more accessible to our lenders.
Also, thank you for the suggestion on displaying the number of unanswered questions. We will review and see how we could implement something like this.
Sidney Chen
Director of Product Strategy
Lending Club
Thanks Sidney. I thought you might not be able to display the FICO score or else you would have done so. Good luck coming up with a new alternative and thanks for listening to my suggestion on the unanswered questions.
[...] majority versus Prosper.com’s 18 percent (8 votes). Despite, my original conclusions that Lending Club is an inferior investment to the S&P 500, only six votes (including one of my own) selected the S&P 500. And Zopa was even further [...]
[...] to my experience, Lending Club might have been better off offering a discount to borrowers because I found borrowers lacking. Maybe Lending Club should offer payment forgiveness on the last three payments to borrowers. [...]
[...] is added to the account. I must admit that due to the income tax treatment of P2P loans and my initial review of Lending Club, I had hoped for other results. However, I put it to a vote and I will accept the [...]
[...] rather than a full title url title such as this one I posted on my initial review of lending club (http://www.personalloanportfolio.com/26/review-of-my-first-loans-with-lending-club/) which is much more search engine and eye [...]
I agree that there are not enough loans to chose from.
I do not like that every time you bid you have to create a new portfolio. I would like to be able to add to a portfolio. Yes, I can rename a portfolio to something meaningful, but I’d like to be able to group all my bids vs all my LC chose bids. If my full $500 doesn’t end up in funded loans, I have to either bid another $500 or hand pick the loans to reach the investment that I want. My plan was to do my lending club investment just by the numbers (with an occassional exception) and I can’t do this!
I do like that a borrower can accept partial funding. 14 days is a long time to tie up money and then not have a loan fund.
[...] Loan Portfolio RSS feed or take a look at the site map. Thank you for visiting!I checked my initial Lending Club portfolio and all the first payments have arrived on time. It is a minor milestone considering that each [...]
[...] I opened my blog to reflect…. Why am I nervous about bidding? I had no problem lending on Lending Club for a total of about $1,000 to date. So why is Prosper Marketplace [...]
[...] and after screen shots below.) Many of the improvements are items that I requested in my initial Lending Club review. My suggestions included in the update [...]
[...] was a good one — I earned over $300 in referral fees through this website by blogging about my experience creating a portfolio, creating a video, gathering advice for new lenders, the inception of the referral program and the [...]
[...] the site map. Thanks!Sorry for being nearly as quiet as Lending Club lately. A quick update on my Lending Club portfolio is in order. Most importantly, I had my first late loan. It is only 16-30 days late, but as most [...]