Tuesday, July 07, 2009

Waiting for initial payments on my Lending Club P2P loan investments

I have successfully completed my initial batch of person-to-person (P2P) loans ("notes") through Lending Club. I have invested 20% of the modest amount ($1,000) than I have earmarked for experimenting with this new investment vehicle. I have $25 investments in eight (8) different consumer loans, with a range of risk profiles. All loans are for a 3-year term.

I actually put in a total of 15 orders, but seven of them either did not get to 100% funding by the end of the 14-day funding period or failed to get verification of employment or income. These "failures" might seem alarming, but they really just show how picky and conservative Lending Club really is.

Unfortunately, the other 80% of my money is sitting at Lending Club idle and does not earn any interest. I could withdraw the money, but I intend to invest it by the end of the summer and it would not earn very much in a money market account anyway.

What's next?

The next step is to wait for the initial monthly payments to come in and see how that process works in practice, as opposed to theory.

My first monthly payment is for $0.83 on July 12, 2009, just 5 days from now. That 83 cents is my share of a $7,700 motorcycle loan that is rated C1 (somewhat risky) and has a rate of 12.53%. Lending Club takes about 0.7% of that, which should net me 11.83%. So far, Lending Club says I have 22 cents of accrued interest (updates every day). The 83 cents includes both accrued interest and repayment of principle. So, of that initial 83 cents, about 25 cents will be accrued interest and 58 cents repiad principle. As each month goes by I will get the same total payment (although it may vary by a penny due to fractional cents), but less interest and more repayment of principle. I am not positive that the 83 cents is actually my net or the gross before Lending Club takes their 0.7%. That is one of the details I will need to verify when the first payment comes in.

Payments are deducted automatically from the borrowers bank account via ACH debit. My share of the payment will accumulate in my Lending Club account, but will not accumulate interest. Lending Club has a reinvestment feature, but that requires that at least $25 be available in the account. I do have my remaining 80% of my initial capital, but I intend to wait until the end of the summer before deciding whether and how to invest deeper into Lending Club. The reinvestment feature searches for loans that meet parameters that you set and sends you an email alert.

My second note will make its first payment 5 days later, on July 17, 2009. The third is a day later, on July 18, 2009. I have two payments due on July 22, 2009, another due on July 23, 2009, another due on July 28, 2009, and the last due on August 9, 2009.

So, for now, all I have planned for the next two months is to sit, wait, and watch. And to blog about my experiences.

Oh, and I still need to research various questions, such as how the interest income gets reported for taxes.

I also want to spend some time sifting their a Google search of "Lending Club" and "sucks" to see if there are any legitimate gripes about Lending Club before I get in too deep.

-- Jack Krupansky


At 2:01 PM EDT , Blogger AJay said...

Thank you Jack for the informative write up of Lending Club. I jumped into Lending Club in April 2009 and now, three months later have 200 notes and some experience with them.

Customer service is easy and I can reach a person immediately. Answers are not always straight forward and I am probably not talking to a decision maker. I do get to ask and express my concerns to an intelligent person though.

Performance has been as promised. You give them money and it sits there until you pick a borrower and that loan is processed. Probably average of three weeks to get the money working.

Three of the loans I participate have had problems. First was a lost debit card causing the closing of the account with the auto-pay. Problem solved in four weeks. No late fees charged to borrower. Second and third are on going. Looks like one will be resolved and the other may have skipped.

So out of 200 loans 198 are ok one is shakey and one is a problem.

I look forward to your experience


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