LendingClub/LendingRobot Test Investment - Verdict is NO

In order to diversify and find better ways to invest, I test new sites and methods. Over the years I tried WealthFront and Betterment (Robo Advisors for securities) and lending sites Funding Circle and LendingClub.  Today I will discuss my LendingClub experience.

In January of 2016 I made a $15,000 investment into Lending Club loans to test the automated selection site LendingRobot. LendingRobot uses algorithms to select the best loans for your portfolio of $25 loans.  They charge a yearly fee of .45% and promise higher returns than picking your own loans.  I selected a middle of the road rate of return of about 8.5%. LendingRobot uses your targeted return rate to choose your specific loans.

I suspected this may not work out within 90 days.  Six of the loans stopped payment after the first payment. Zilch, nada, nothing.  To me that smells of pure fraud by the borrowers and poor underwriting by LendingClub. By August, I had earned about $1100 dollars in interest, but LendingClub had written off $530 in loans.  My adjusted Net Annualized return as of today per LendingClub is 5.59%.  I am not confident in this calculation.

Based on the poor performance and bad press LendingClub received, I cancelled my subscription to LendingRobot and stopped buying new notes at LendingClub on August 15.  As of October 19 I have received $1349 in interest. They have charged off $225, $25 is in default, $625 is 31-120 days late, $100 is 16 to 30 days late and $200 is in the grace period.  I have $14,780 of outstanding principle and have withdrawn $1,283. Lending club says my account total after adjustments is now $14,246.  That plus the $1283 that I have withdrawn means that I have made $529 in nine months on my $15,000 investment.

If your curious as to what grade of notes Lending Robot selected, here is the breakdown:

32% A

9% B

5% C

21% D

19% E

8% F

5% G

This resulted in a 15.17% blended interest rate. 78% were 36 month loans and 22% were 60 month loans

Imagine how bad my return would be in a recession?  I am running for the doors and sticking to loans on real estate.  I suspect that by the time my last note is paid back, I will have earned a negative interest rate.  When loans go bad with hard money loans, you still have the collateral of the real estate.  I prefer that security.  Based on my nine-month experiment I cannot recommend either LendingRobot or LendingClub.

 

Don Wallace

Member Since: 2016

Oct 20,2016@10;14 AM

 

Fascinating, thanks. I decided to experiment with LendingRobot as well at the beginning of the year and just checked my LendingRobot account. I put in $20K at the beginning of the year and my current account value is $21,353. 14 loans (total value $321) have defaulted so far. Annualized, that means that the very best case is 9%, but my guess is that I'm going to see several more loans default, and I'll end up with something between 3% to 6% when all is said and done. Agree with the others here-- basically not worth it. I'm going to stop reinvesting and will park my cash elsewhere.

H S

Member Since: 2016

Oct 20,2016@10;13 AM

 

Thanks for the breakdown, Mark! I've had a better experience (so far) using LendingClub and Prosper. I doubted LendingRobot's algorithm and choice in loans when we first brought this up (see the previous forum on it). Instead I used NSR Platform to do a lot of personal R&D to find what I thought to be the best historical criteria to use when buying into LC and Prosper respectively. I then used the automated investing on the two platforms with those criteria. LendingClub: 12.20% Adjusted Net Annualized Return Prosper: 15.32% Annualized Net Return I tend to the more risky loans, but I've (hopefully) curbed much of the defaults of these by analyzing and cherry-picking the "safest" of these loans. LendingClub Breakdown: 50% C 16% D 18% E 12% F 4% G Prosper Breakdown: 8% B 21% C 32% D 26% E 13% HR One thing to note is that it took me quite a while to deploy my funds into these two since I was picky. I started around the same time as you, Mark. Prosper was fully vested about 5-6 weeks ago; LC about 2 weeks ago. Also, I reinvest all my payments back in so that extended the timeframe as well. Now that I'm fully vested, it'll be interesting to see how the next 6-12 months goes with both these two as it's usually the first year where you get the most defaults. I am not adding any funds to these nor do I plan to, however, I am keeping the reinvestment of payments. The real return, if I'm to believe the adjusted account values on the two (which takes into account standard default rates) on both so far: LendingClub: 5.4% Prosper: 7.1% Again, this is not annualized and with significant ramp up time to get fully vested. It looks a bit better than Mark's 3.5% return (using LendingRobot vested very close to the beginning of the year). However, many of my loans are still early in the cycle, so time will tell.

Dock Brown

Member Since: 2016

Oct 20,2016@10;10 AM

 

Here's my LC experience. I started with LC in 2012. I used LC's own auto invest feature. To date, I have roughly 7% IRR (based on my calculations and not LC's). I heard a podcast of someone who analyzed the loan information that LC posts. During the 2008 recession, had you invested in A/B notes, you would have still averaged about 5-6% return, but would have lost money on C-G notes. During the last few years, C-G notes outperformed A-B notes. I didn't do any analysis myself, but this makes sense. So over the long term, 6-7% seems reasonable. However "long term" is questionable as P2P lending is still a new industry. Since I'm in a high tax bracket (and in CA), I've been peeling money out of my own LC account and started a UGMA account for my son early this year. The investment criteria is exactly identical but so I have a 5.96% "adjusted" return per LC. And hence so far 2016 has underperformed for LC compared to last few years. I started with $10K in this account and have withdrawn $4K as I too am losing faith in LC. I also started trialing LendingRobot 1 mo ago but is too early to tell if that has changed anything. On a separate question, has anyone invested with a UGMA/UTMA account in any RE crowdfunding platforms? I'd imagine if they allow it, it has to allow nonaccredited investors.


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