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| Behold the figure! |
A negative return? Why is it so low, you might ask? The answer is simple: one of the people to whom I lent money decided to stop paying, and that person's loan was just charged off. The change is so dramatic from this point because I only have 16 total loans, so any one default is going to affect me enormously. As Lending Club itself has suggested, the more loan notes you own, the less any individual default hurts you.
See the print screen from the site describing Lending Club's efforts to get the person to pay.
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| "Recovery unlikely," eh? So you're saying there's a chance... |
In retrospect, it seems like this guy was probably applying to Lending Club as a last-ditch effort to stay afloat financially. I'm basing this assumption on the fact that his credit score (which you can monitor on the site) has basically gone into the crapper the last few months. It seems like the last thing he needed was more debt.
In short, investing in Lending Club in the minimal fashion with which I have invested is an especially high-risk/high-reward enterprise. I'm positive there are plenty of other folks out who have a comparable number of notes as I do who have no defaults; conversely, I'm also fairly certain that there are those who have more defaults.
The only real way to lower the volatility in your Lending Club portfolio with some certainty is to own more notes. Even so, even easily explained double-digit losses give me pause. Still, the truth of the matter is, I'm only out about $23 and change; this wasn't the sort of loss that means I'll be stuck eating cat food in my retirement.
What do you think? Have you invested with Lending Club? What have your experiences been? Let me know in the comments.
6 comments:
This is the reason I am always adamant that investors diversify as much as possible. You really can't give Lending Club or Prosper a fair test without 100 notes because one default will have a big impact on your returns.
You were unlucky - less than 1.5% of A5 notes issued since Jan 2010 have defaulted. But bad stuff sometimes happens to good people and it is impossible to maintain a decent sized portfolio where everyone pays on time. I hope you consider putting in some more money and creating a diversified portfolio.
I agree with Peter, with such a small portfolio, you really aren't diversified enough to recover from the inevitable troublesome note.
Curious, did you not try and sell the note on FOLIOfn? If not, that's something you should consider. The market there seems pretty active. I end up having to sell of a few notes every now and then. Seems much better to take a small loss when the note starts to tank instead of losing your entire investment.
Ahh, that's scary that they can just stop paying! Is there any protection around that or do you just have to eat the loss?
Peter: Agreed, the very negative number is certainly a result of only investing a small amount.
Brady: I probably should have sold the note, but I haven't figured out how to resell notes yet. Obviously I should look into that.
Daisy: Lending Club does try to collect from people who've fallen behind of payments, but if somebody can't pay, they can't pay. Another option, like Brady suggested, would be selling the note once they miss a payment. Even if I sold it for a loss, at least I wouldn't have lost the whole rest of the note.
I haven't invested in any peer to peer lending but as I see more and more people doing it, I am becoming interested.
They say, diversification is the only free lunch!
Ah, that must be incredibly frustrating, but I guess it's also a good learning experience. I would love to get into some peer lending programs, but I think I'd need to have some money first!
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