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. [Read more…]