A month has passed by since my last update on my LendingClub experiment. Time for another update.
My notes summary
While everything looked perfect last month, this time however, some notes are starting to show potential issues. As shown on the left, out of all the 230+ notes, three notes are now in grace period, meaning they are late but still within the 15-day grace period. It’s a small percent of all the notes, but I certainly would like to find out what’s wrong with these notes. It’ll be great if I can find a pattern so I’ll know what to avoid in my future note acquisitions.
Notes in grace period
When I clicked at the three notes in grace period, it shows me their usual info like loan ID, note ID, interest rate, terms etc. Since there’s only three notes here, it’s not going to give me a statistically convincing conclusion but I did notice two common themes which may reasonably account for them being late.
a) High interest rate. All the three notes are of E & F grades, with high interest rates ranging from 19.99% to 26.57%. Based on LendingClub historical data, high interest rate loans tend to have higher default rates. Makes sense.
b) Recent decrease in credit score. Actually only two of the three notes showed recent decrease in credit scores, dropping by 20 to 40 points in the past four months, from low 700’s in the beginning to now below 700. The third note however, showed almost 80 points of increase in credit score to the now exceptional 810, but it is riskier in that it has the highest interest rate at 26.57%. Overall I’m more concerned with the notes showing decreasing credit scores. I’ll see if I’m right next month.
Besides these two points above, I don’t really see anything apparent related to their underperformance. All the loans are for the same purpose of debt consolidation, with initial credit score between 705 and 725, and loan amount being $32,000-$35,000, and on a 60-month term.
Lessons to learn for future notes purchase? I should probably buy notes with initial credit score in the higher range, preferably above 740. As for interest rates, so far I won’t necessarily avoid high interest rate notes because low interest rate won’t give me a high return anyway.
My plan with notes in grace period
My plan is to, run! I’d like to run away from these notes by selling them in my trading account. I actually listed these notes on the market a few days ago at premium price but so far no luck. I think a better strategy is to wait for the payments to come through before listing them for sale. I’ll definitely do that when (or if) the notes get paid on time later.
My weighted average age of my notes is now finally 3 months, which means it can be incorporated in the comparison chart below generated by LendingClub.
LendingClub recent issues
Later last month, like most of LendingClub account holders, I received a strange email from their CEO and president, seeming to ask us to remain their investors. That prompted me to Google to find out. I didn’t dig in too much but apparently LendingClub is in some trouble, with CEO resigning under some financial scandal and investors pulling back. Am I going to do anything about my notes in the account? Probably not for now. So far it’s giving me great returns which is what I care more about. But I’ll also hold the thought of adding more funds to my account until things are clear.
Actually because of the recent issues(at least I think so), LendingClub is now offering a great sign-up bonus: if you join LendingClub now with my referral link here, you’ll get $150 from LendingClub, as opposed to $75 or $100 in the past. So if you’d like to try LendingClub, it’d be a great time to join now.
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