I was looking at my Lending Club account a couple of days ago and I realized that I passed a milestone… I’m averaging over 7% on my Lending Club loans. It’s not just a little over 7% either, it’s a whole 7.2%.
When I did my May 2012 Lending Club report, I had a 6.71% return. That’s a pretty good gain in a short time. I wish I could tell you that I found some fantastic secret in that time, but I didn’t. In fact, I had largely ignored my Lending Club account leaving some dead money in it. That’s why you see that I have $300 in funding when I should have put it to work awhile ago.
What is actually happening is that my A and B loans that I made a few years ago in hopes of having minimal risk are coming off the books as they get paid in full. After looking at the global Lending Club returns for each grade, it became clear that those low risk loans were also by far the lowest returning… even when accounting for defaults. The E and F grades return an average of around 13% after accounting for defaults according to Lending Club. A full quarter of my loans are still in the A, B, and C grades. I have another quarter in D grades which return about 10.5% on average. I then have 40% in the E grade which returns 12.31% on average.
I only have 9% in the F grade which returns 13.5% on average. The reason I have so few F grades is that I like to lend to people with 700+ credit scores or above. It’s hard to find someone with a 700+ credit score who is willing to get a F grade loan and pay over 23% interest. In fact, I don’t even know how I had 9% in that category. However, armed with the knowledge that F grade loans perform so well, even after accounting for defaults, it’s something that I’ll look to add exclusively to my Lending Club portfolio for awhile.
In the short term, the 7.2% return is making a great case for getting a bigger slice of my portfolio… even if we don’t know if that rate of return is trustworthy. I didn’t expect very good returns in this economic environment of high unemployment. I am happy to be proven wrong. I’m strongly considering opening up a Roth IRA account with Lending Club to try it from scratch (no A and B loans bringing down my average returns) in a tax-free environment. I have to look into how that works at Lending Club.
If this sounds like something you’d be interested in, sign up for Lending Club today and start earning more interest.