Lending Club Strategy

Lending Club Screenshot

I was rather late to hop on the Lending Club bandwagon. I live in a state where it is not legal invest on the Lending Club platform. I can however invest on the secondary market.

Admittedly it took me awhile to warm up to the idea of investing on the secondary market. The platform used to SUCK both aesthetically and from a loan filtering standpoint. When there are currently over 100,000 loans to sort through, you need good filtering capabilities. Fortunately both issues have now largely been fixed and its actually quite easy to use.

Its true that you will more than likely pay a markup on any loan purchased through the secondary market. This markup is completely worth the cost as you get to benefit from seeing the lendee’s payment history. I personally think this is a much better indicator of likelihood of defaulting than any other. It certainly gives me more confidence when investing in low quality (but higher paying) loans.

These are the two sets of filter criteria I use(one a slight modification of the other):

For 36 Month Loan Term:

Interest Rate: All Loan Term: 36 Months Outstanding Principal: 0 – Any Loan Status: Issued,Current, Never Late * Remaining Payments: 28 Recent Credit Score: All Credit Score Change: Up or Same Original Note Amount: 25 – Any Asking Price: 0 – 100 Yield to Maturity: 13 – Any Markup/Discount: No more than 1% markup Exclude Loans I have already invested in: Yes

For 60 Month Loan Term:

Interest Rate: All Loan Term: 60 Months Outstanding Principal: 0 – Any Loan Status: Issued,Current, Never Late * Remaining Payments: 50 Recent Credit Score: All Credit Score Change: Up or Same Original Note Amount: 25 – Any Asking Price: 0 – 100 Yield to Maturity: 15 – Any Markup/Discount: No more than 1% markup Exclude Loans I have already invested in: Yes

* One filtering criteria not available but that I still do manually is: “Never been in grace period before.” I immediately reject any that have ever been in grade period. This adds some grunt work, but is important.

Notice I demand a slightly higher rate of return for 60 month loans. Its my opinion that 36 month loans are less likely to default simply because there is less time for something financially devastating to happen in.

I also cap the asking price at $100. It is important to spread your risk out over as many loans as possible. I am currently spread out over 767 loans with only 7 in grace period or worse.

This criteria is pretty strict. There are times when no loans will be available. You can often ‘unlock’ some more by bumping the maximum markup to 2%, but I prefer to wait.

General

Comments