Back in late January, I wrote that it was time to Revisit Lending Club. Specifically, I wanted to revisit why my net annualized return was 4.78% and the average person had a 9.68% return. After a little research, I realized that I was lending too conservatively. I picked the cleanest loans I could find…. so clean that when one didn’t come through it destroyed my rate. There was no margin for error.
Over that last 6 weeks, I started reinvesting all the payments from my previous loans differently. One of the first things I did was look at the returns by credit grade with this graph:
As you can see, the A loans that comprised almost my entire portfolio had to be changed. I focused my attention away from their average 5.86% returns and more towards the E loans with their 12.48% performance. In addition, I looked for the following criteria:
- 24 Months since delinquency
- Credit score above 750
- Interest Rate above 13.43% (this excludes the A & B grade loans)
- The loan was approved by Lending Club
With these in place, I feel a little better lending to those E grade loans. The results have been pretty amazing thus far. My 4.78% is now at 5.90%:
I have to admit that I didn’t think I’d see this kind of progress as quickly as I have. I’m still doing my fair share of knocking on wood. A couple of charge-offs could bring me right back down to 4.78%. However, as it stands now, I’m only a few months away from hitting that nearly 10% net annualized return – a good number in today’s low-interest rate environment.
Looking to diversify your portfolio? Give Lending Club a try.