# The Lending Club Experiment at One Year – the Gravy Train Grows Crowded

## By Mr. Money Mustache

## Mon, 26 Aug 2013 21:21:38 +0000

It has been over eleven months since I opened my Lending Club account and started experimenting in the field of peer-to-peer lending. While I have been providing monthly updates on my little headquarters page, many have asked that I write a new post to summarize the results. So here’s the summary:

With an annualized return over 17% to date on a $33,000-and-growing balance, I am very pleased with the results so far. And although I expect the return to drift down to about 12% over time, everything I’ve learned to this point tells me this is a valid way to earn higher returns in today’s low yield environment. Here’s my up-to-the-minute account summary:

Returns-to-date (including late/default status)

The default rate has been fairly low so far and thus I expect it to increase if we are to eventually end up at 12%: assuming all possible late loans on the books today end up in default and more come in indefinitely at the same pace, we would still end up with an over 13.5% return. See the HQ page for more on the trend.

…but…

At the moment, the conditions that allowed me to get this great return are no longer so easily available. The supply of investors has grown more quickly than the pool of borrowers, as Lending Club freely admits in this April post on their website. A Wall Street Journal article on August 6th noted the same thing, and this Bloomberg Story has a nice picture of the various big businesses swooping in on the action.

The situation persists, even as they crank up loan volume: in April as they wrote that post, they were excited to pump through $140 million in loans. By last month (July), the number was already up to $173 milllion. The company’s loan volume since 2007 totals over $2.3 billion, with more than half of it in the last year.

You can see the effects of this directly in my own results. Remember the good ol’ days, when I was able to deploy my first $10,000 within a day or two? I filtered notes for the higher-yielding C through G categories along with a bunch of other restrictions* and still got a screen like this:

208 notes?! Must have been nice!

If I log in right now and attempt to pull up results with the same filter, this is what I get:

Today, only ONE note met my criteria

One measly note. And it’s not even a “debt consolidation” loan – the type I prefer to fund.

So where does this leave us? In a slightly less cushy place, but still a good one. Let’s review the facts:

- I believe that Lending Club is still a good investment opportunity, just not quite as lucrative as it was a year ago. The notes that are most readily available are the safest ones – grade A and B, with interest rates of 6-9%. Looking in the system right now, I see 32 of these. It’s easy to invest a few hundred dollars a day. Just impractical to deploy a portfolio of $10,000 or more unless you have a lot of time on your hands.
- You can always compete for the tasty scraps: digging through their website, I see that they release a new batch of notes at 6AM, 10AM, 2PM, and 6PM Pacific Time every day. With a speedy mouse finger, you can still get the higher-yield notes rather than settling for the safer but blander options that get left behind.
- The company is working to expand as quickly as possible. For Lending Club, this is an embarrassment of riches – they have a rapidly growing pool of borrowers on one side, and an even hungrier pack of investors on the other. Although I’m only making things worse with articles like this**, it is still worth reporting on an interesting situation. They just need to advertise more on coupon and shopping blogs, and less on those targeted towards early retirees.

Although the situation represents a slowdown for investors, the opposite is true for borrowers. Due to the number of people that want to lend you money, borrowers can now expect lower interest rates and faster funding. If you have good credit and find yourself in the “A” category of Lending Club’s rate chart, this could be an opportunity to instantly acquire up to $16,000 at a rate of 7-9%, then use it to displace other more expensive debt.

As you move down into lower credit scores, you’d pay higher rates, and although I’d invest in your notes, on a personal level I recommend moving back into your parents’ basement before resorting to borrowing money at 20% interest unless for a very short-term emergency.

Summary:

I’m planning to keep my account open for the long haul, and keep reinvesting the roughly $1000 per month of principal and interest payments that it now generates into new notes. I also expect Lending club to be able to fix the supply issue in the long run, and I will report back to you if I see this happen.

Still interested in following along? You can dig in with your own investor account here.

On the borrowing side? You’ll want to use this link.

Other Articles in this series:
The Lending Club Experiment – Part 1
The Lending Club Experiment Four Months Later
Lending Club Profits and your Taxes
The LC Experiment Headquarters Page

Notes:

The Investor and Borrower links above will benefit this blog if you use them and end up creating an account for yourself (and thanks).

*Here is my own lending club filter, developed after research on lendstats.com and bravenewlife.com:

– Delinquencies last 2 years: 0
– Home Ownership Mortgage+Own
– Exclude Loans already invested in
– Minimum employment 4 years
– Interest rate C,D,E,F,G
(this is a higher risk, higher return strategy that the statistics seem to suggest will work much better on average)

**Comparing their news releases to my own referral link stats, between 1-3% of LC’s investors are directly from this blog. Investors from MMM outnumber borrowers by about 100-to-1: Go Mustachians!