Lendingclub.com

[InfoOverload]

I don't think that anything has been posted about Lendingclub.  If it has, I'm sorry.

Lendingclub.com is basically a site that allows you to give out micro-loans.  I started this about a year ago, before I started reading this forum.  I have done quite well, just under 12% after expenses year to date.

I invested money in it because it was completely different, and I thought it was a great idea.  An idea that I wish I would have thought of (along with ebay many years ago).

I would love to know what the forum members think about Lendingclub as part of the Variable Portfolio.  Please be critical.

The negatives that I have come up with so far are,
1) It is a loan, so you don't have access to your money (which can also be a good thing in my case).
2)Either Lendingclub is complete BS or,
3)The people getting the loans are full of it.
4)If the economy goes south what happens to the payments?
5)Taxable Income

Positives
1)Cool Idea
2)Different
3)So far it has been working

[craigr]

I actually did a post on these types of ventures here:

https://web.archive.org/web/20160324133 ... t-lending/

Unfortunately you tend to get a lot of people with bad credit going after these loans (no bank will lend to them). Ironically these sites started out as a hippie love fest "we're going to bypass the banking man to make community loans" idea. Then they realized quickly there is a reason why banks have things like credit checks and require, you know, a job. So now many of them have tightened up lending requirements so much to weed out deadbeats they basically have become what they initially didn't want to be: A bank.

I find the whole concept ironically delicious, but still not investable for me personally. But let us know how it goes for you. Maybe they've cleaned up their business model and have gotten it working.

[InfoOverload]

Great Post from your website.  So far it has been working, and working well.  I agree that there is a lot risk.  I also agree with the one response from your previous post that it has strangely been a little fun, but losing money would take care of that.

[craigr]

Great Post from your website.  So far it has been working, and working well.  I agree that there is a lot risk.  I also agree with the one response from your previous post that it has strangely been a little fun, but losing money would take care of that.

If you're doing it with money you can afford to lose, then go for it. It doesn't sound like you are under any delusions about the risk involved. Besides, it can provide a learning opportunity to hone your business analysis skills. There are two things required for a good business venture:

1) A good team
2) A decent simple plan

A good team can get an OK plan to work (or change things around to get it to work). A bad team can't get even the best plan in the world to work. So I would encourage you to look at the person taking the money as best you can vs. the idea they are trying to do. I would also look at what they want to do with the money if you are able to make sure their purpose is simple and straightforward.

A very prominent Venture Capital firm in Silicon Valley told me once that an A Team and a B Idea can work. But a B Team and an A Idea will never work. They're right! So focus on the credit worthiness and trust of the borrower. Ignore people with shaky credit that don't have a track record of execution (especially if that lack of execution is not paying people back).

[craigr]

Also I'll add this from a learning perspective after looking at the site.

You can make loans as small as $25. If you make 10 of them you probably will have a certain number fail and a certain number succeed. I've always found I learn more from failures than successes. In this case for an average $25 you can look at why a loan failed and take away lessons from it. What kind of person is a bad risk? What kind of business idea is a bad risk? Were there other factors involved that caused the loan to go bad that I didn't consider? Etc. These things are really valuable for later more serious speculative investing. It will also show you how to sharpen your senses to spot obvious problems quickly and harden your emotions against losses.

So for a relatively small sum, you can get something about small business investing that the best MBA schools in the country can't give their graduates: real-world experience.

[ggmillar]

Hi,

If you will allow me to throw some history into the conversation.  In the interest of full-disclosure, I am an employee of Prosper.com.

Prosper.com began peer-to-peer lending in the US in 2006.  Lending Club followed in 2008.  There were also a number of other companies.  In 2008, the SEC started regulating the peer-to-peer lending business and required all P2P lenders to register with the SEC.  All p2p lending companies went into a quiet period.  Only 2 survived, Prosper and Lending Club.  To date, the two together, have originated over $500,000,000 in loans and both are growing at over 10% per month.  The current run rate is over $400,000,000 per year.

When Prosper started the industry, borrowering requirments were much less restrictive.  (Although it wasn't quite a hippie love-fest.  Prosper was actually started by the co-founder of eLoan and has on it's board the founder of Capital One.)  In 2009, lending restrictions were tightened, and today, the minimum credit score needed to borrow from Prosper is 640 and 660 from Lending Club.

It's not a bank either though.  Because while Prosper and LC act as underwriters for the loans and do the risk analysis, the money is not coming from banks, but from every day investors like you and me.  These lenders are now able to tap into the profitable consumer loan market.  According to the Federal Reserve, in the last 29 years banks have averaged a 10.8% annual return on consumer lending.  Since 2009, Prosper investors have averaged a 10.7% annual return.  Lending Club's is lower, though still far above what banks are paying depositors.

Hope this information lends some light on the discussion.  I would be happy to answer any industry questions you have.

Glenn G. Millar
Prosper Employee
gmillar <at> prosper <dot> com

[craigr]

Hi,

If you will allow me to throw some history into the conversation.  In the interest of full-disclosure, I am an employee of Prosper.com.

Welcome to the site.

When Prosper started the industry, borrowering requirments were much less restrictive.  (Although it wasn't quite a hippie love-fest.  Prosper was actually started by the co-founder of eLoan and has on it's board the founder of Capital One.)  In 2009, lending restrictions were tightened, and today, the minimum credit score needed to borrow from Prosper is 640 and 660 from Lending Club.

A credit score of 640 is still quite bad. With a return of 10.7% the past few years to investors I would have to ask how much is your average loan rate to borrowers? Seems like you will be mid-teens required to get that kind of payback.

Also, what is your current default rate on loans?

Thanks again for posting.

[ggmillar]

Welcome to the site.

A credit score of 640 is still quite bad. With a return of 10.7% the past few years to investors I would have to ask how much is your average loan rate to borrowers? Seems like you will be mid-teens required to get that kind of payback.

Also, what is your current default rate on loans?

Thanks again for posting.

Happy to be here.  Great questions.  Our average default rate is 5.48% across all loans.  Of course, it varies greatly based on the credit risk of the borrower.  Thus, our average yield is 16.18%, but again, there's a pretty big range depending on credit score.  Here's a link to all our statistics.  http://www.prosper.com/welcome/marketplace.aspx

By the way, even though our minimum credit score is 640, our average credit score is 737.

Finally, and I don't wish to spam,  on November 3, we are doing a webinar on measuring ROI performance in the peer-to-peer lending industry.  If you are interested, I will post a link.

Glenn G. Millar
Prosper Employee
Notes offered by Prospectus www.prosper.com/prospectus

[craigr]

Welcome to the site.

A credit score of 640 is still quite bad. With a return of 10.7% the past few years to investors I would have to ask how much is your average loan rate to borrowers? Seems like you will be mid-teens required to get that kind of payback.

Also, what is your current default rate on loans?

Thanks again for posting.

Happy to be here.  Great questions.  Our average default rate is 5.48% across all loans.  Of course, it varies greatly based on the credit risk of the borrower.  Thus, our average yield is 16.18%, but again, there's a pretty big range depending on credit score.  Here's a link to all our statistics.  http://www.prosper.com/welcome/marketplace.aspx

Thanks for the link.

By the way, even though our minimum credit score is 640, our average credit score is 737.

Finally, and I don't wish to spam,  on November 3, we are doing a webinar on measuring ROI performance in the peer-to-peer lending industry.  If you are interested, I will post a link.

Glenn G. Millar
Prosper Employee
Notes offered by Prospectus www.prosper.com/prospectus

This part of the forum is for discussion of speculative investing. Since this is a two-way conversation it is not spam so there is no problem posting your link.

I'm happy to hear the business model is being cleaned up. It could hold interest for readers of this forum for money they can afford to lose in speculative assets.

[ggmillar]

This part of the forum is for discussion of speculative investing. Since this is a two-way conversation it is not spam so there is no problem posting your link.

I'm happy to hear the business model is being cleaned up. It could hold interest for readers of this forum for money they can afford to lose in speculative assets.

Here's the link to our webinar on Nov 3, titled "Peer-to-peer Lending Performance Measurement Summit."  We are expecting about 30-40 financial bloggers and people interested in peer-to-peer lending.  Hope you can attend.  https://www1.gotomeeting.com/register/197074401

Thanks,

Glenn G. Millar
Prosper Employee
Notes Offered By Prospectus www.prosper.com/prospectus

[TripleB]

I've been very interested in investing money into this method for a while as a portion of my variable portfolio. The only thing that's kept me from it is that I don't currently max out all of my tax-sheltered options, and I need to do that before I look at any "taxable" investing, since the tax-shelters are "use them or lose them" each year (I'm hitting all the regular tax shelters like IRA and 401k, but not able to max out I/EE Bonds under multiple EINs yet).

I suspect my income will rise enough in 2 years that I'll be able to make taxable investments. Looking at Prosper for about 2 minutes is making me very nervous. The first few loans I saw were 30% to people who want to use the money to:

1) fix their truck
2) pay off higher interest rate debt (really? higher than 30%??)
3) give money to their mom towards a downpayment on a house

Several of the prospective borrowers:

1) cannot spell
2) use grammar poorly
3) are buying things that are normally done via a secured loan like buying a car (who borrows at 10% to buy a car on an unsecured loan?)

I will say that this does pique my interest, for reasons Craig mentioned above. i.e. I can look through the loans, maybe across several hours, and handpick out the ones that seem the most reasonable. i.e. someone borrowing $10k at 30% for a wedding is probably an idiot and will never pay back the loan.

I imagine that there's legitimate inefficiency in this market, that an intelligent investor could exploit. For example, someone smart could better interpret the borrower requests and get a better risk-adjusted return. Someone actively looking through investments would get a better return than someone just randomly dumping money into everything (in theory).

If you had a Roth IRA option, it's something I'd try right now. I don't think you do, so I'll wait a couple years and then re-explore it. If there is "arbitrage" to be had, then it might be all gone by then.

[TripleB]

Here's a good one. Guy wants to borrow 30% to start a business. No mention of what kind of business it is.

He says, he's a good candidate for a loan because he "plans on becoming a success."

I wouldn't lend this clown money at 800% interest.

[ggmillar]

First, let me say what I am about to say reflects only my own feelings and is not necessarily a reflection of Prosper or their position.

Many investors use Prosper's automated investing tool (Quick Invest) and don't bother reading the descriptions.  They are very happy with their returns, because for them it's a numbers game and once an investor is diversified, Prosper's estimated returns and the subsequent actual returns are typically pretty close.

That being said, Me?  I read every one of the descriptions and I'm with you.  I don't usually invest in anyone who doesn't take the time to write a typo-free, complete description.  (I will make an exception for previous Prosper borrowers with no late payments on their record.)  I also don't invest in people where I wonder about their choices.  You're borrowering $14,000 for an engagement ring?  Really?  If your girl really needs that, are you really marrying the right girl?  I hope your marriage lasts as long as the loan term. 

However, even with my biases, I find plenty of loans to invest in of what I consider reasonable people who will pay back their loans.  Will I be wrong sometimes?  Sure.  But I'm like you, I feel like I can knock off some of the potential bad risks just by reading their descriptions.  I'm more than happy with both level of investment and my returns, and I invest regularly every week. 

I'm curious what others think.  Do you read the descriptions or just use Quick Invest? 

Glenn G. Millar
Prosper Employee

[TripleB]

Glenn,

Thanks for taking the time to describe your business in depth.

I didn't register an account, because I don't wish to give my SSN and banking info until I'm ready to invest, so I cannot see the full features on the site.

Specifically, tell us about advanced search? Can we search by type of loan (i.e. business versus personal)? Any other worthwhile parameters?

Can you see what other people are investing in through search? i.e. you can see on each page who has contributed how much money. Suppose on the few hand-selected borrowers that I like, and also notice the same investors on those pages, I might decide to search by that investor since we think similarly.

Are there prosper "lending clubs" popping up? i.e. it might take a few hours to weed through hundreds of listing to find 1 really good one. There's economies of scale to this activity, if there was a trusted group of individuals, who each separately took time each week, taking turns, to find good investments on the site.

====================================================================

Also, for purposes of disclosure, can you explain your intention behind posting here? I don't mean this as being confrontational, but it's not common for people to post on internet forums with their real names and job titles in their signature lines. I appreciate hearing about Prosper from you first hand, just curious why you're here? Are you:

1) A true fan of the permanent portfolio, and while you're here for personal reasons, figure you can share information that might be worthwhile to our community?

2) Registering accounts on various financial forums where people might be interested in Prosper?

3) Paid by prosper to do marketing (which according to your linkedin, is the case) and posting here (and maybe other forums) is part of your daily job? If so, I'm curious how you gather metrics on how successful posting on various forums is (assuming people just type Prosper.com into their browser directly rather than a click-through referral link).

4) Do you just work for Prosper, or do you have equity and thus a vested interest in it succeeding?

I can't really imagine that taking the time to post on here to a few hundred readers would really be worth Prosper's time for official marketing, so I'm inclined to believe that you're here out of a genuine interest in sharing info about the company you work for, which you happen to believe strongly in as a useful investment product.