An update on Lending Club -
I've got about 15k in the program. So far, I have no defaults. Anyone looking into it should understand that they severely misrepresent defaults, and thus overall returns, on the front pages of their site.
The company is growing at a fast pace; at any given time, the majority of loans used for their calculations are new loans. In general, their loans tend to go bad in the second year or later, so inherently default rates are always going to be understated when calculated against all loans, active and inactive.
However, they do provide the raw data on their site, here:
https://www.lendingclub.com/info/download-data.action
I set up a database for myself w/ this data; limiting a query to just completed loans, the overall default rate is about 35% (i.e. when considering only default & fully paid loans). "A" rated loans default at a rate of around 8%, "B" at 18%, etc. The risk is severely underestimated. Having a loan default in the 3rd year, when most of the principal is paid, is a hell of a lot better than defaulting immediately - I haven't drilled down to see what percentage of principal is paid, to figure out actual returns. I do know, however, that LC is underestimating risk, and overestimating ROI, by a pretty wide margin.
Another thing that should be pointed out is that your interest is going to be taxed at your marginal rates; IMO "A" grade loans, considering that fact, are not worth it compared to investing in something like verizon or at&t, which pay solid ~5% dividends at favorable tax rates.
Finally, for the p2p loan investor, you should realize that as far as you're concerned, the loans are unsecured; once loans go bad, there's nothing you can do to recoup.
I've got about 15k in the program. So far, I have no defaults. Anyone looking into it should understand that they severely misrepresent defaults, and thus overall returns, on the front pages of their site.
The company is growing at a fast pace; at any given time, the majority of loans used for their calculations are new loans. In general, their loans tend to go bad in the second year or later, so inherently default rates are always going to be understated when calculated against all loans, active and inactive.
However, they do provide the raw data on their site, here:
https://www.lendingclub.com/info/download-data.action
I set up a database for myself w/ this data; limiting a query to just completed loans, the overall default rate is about 35% (i.e. when considering only default & fully paid loans). "A" rated loans default at a rate of around 8%, "B" at 18%, etc. The risk is severely underestimated. Having a loan default in the 3rd year, when most of the principal is paid, is a hell of a lot better than defaulting immediately - I haven't drilled down to see what percentage of principal is paid, to figure out actual returns. I do know, however, that LC is underestimating risk, and overestimating ROI, by a pretty wide margin.
Another thing that should be pointed out is that your interest is going to be taxed at your marginal rates; IMO "A" grade loans, considering that fact, are not worth it compared to investing in something like verizon or at&t, which pay solid ~5% dividends at favorable tax rates.
Finally, for the p2p loan investor, you should realize that as far as you're concerned, the loans are unsecured; once loans go bad, there's nothing you can do to recoup.