In November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see previous updates here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.
It is now about a week shy of the two year anniversary of this experiment, so here’s another quick update.
$5,000 LendingClub Portfolio. As of October 20, 2014, the LendingClub portfolio has 157 current and active loans. 71 loans were paid off early and 21 have been charged-off ($314 in principal). 3 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $3,515 in uninvested cash from early payments and interest. Total adjusted balance is $5,392. LendingClub reports my adjusted net annualized return as 5.27%. Here is a screenshot of my account.
$5,000 Prosper Portfolio. My Prosper portfolio now has 142 current and active loans, 85 loans paid off early, 31 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$66). $3,024 in uninvested cash (early payments and interest). Total adjusted balance is $5,334. Prosper reports my net annualized return as 5.56%. Here is a screenshot of my account.
Recap and Thoughts
- P2P lending is legit. LendingClub is preparing for an IPO on the NYSE. Institutional investors are buying a significant portion of LendingClub and Prosper loans. This WSJ article says 66% of Prosper loans in 2014 have been sold to institutional investors. What started out as the Wild West of unsecured loans is now accepted by Wall Street. This would suggest that reliable positive returns for investors are more likely, but also that chances for outsized returns will be diminished.
- If you continually reinvest your interest, the return numbers you see will be higher than your actual long-term returns. Due to how they are calculated, your reported return will deteriorate as your loans age and more borrowers default. After two years, Prosper reports my annualized return as 5.56%. 4 months ago, it was 5.76%. 8 months ago, it was 7.55%. LendingClub reports my annualized return after 2 years as 5.27%. 4 months ago, it was 5.94%. This doesn’t mean you shouldn’t invest and your returns may better than mine, but be aware of this pattern if most of your loans are new.
- If I were to invest all over again… First, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free automated investments at LendingClub (no minimum at Prosper). Picking loans can be fun for some but I got bored after a while.
- LendingClub vs. Prosper relative performance. I tried my best to invest at both websites with the same criteria and overall risk preference. Right now, LendingClub is ahead by a bit. I wouldn’t put too much importance on the absolute numbers as I stopped reinvesting into new loans (at both sites) after the first year. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances separately over these past two years: