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Lending Club Question
Posted on 12/22/15 at 4:40 pm
Posted on 12/22/15 at 4:40 pm
Started checking out Lending Club as a diversification option for a portion of my portfolio. I know some of you on this board have mentioned it as a possible tool, so I do a little online research and I decide to invest a little bit.
Then I started thinking... instead of using my own money, I'm certain I could borrow some money at an A grade (high FICO, low DTI, no revolving debt, homeowner, etc.) and then "lend" it back out at C/D/E grades. Just like a bank. Does Lending Club stop you from doing this? Can I play bank sitting in my underwear on the couch?
Oh, and inb4:
Yes, I know it's incredibly risky.
Yes, I know I could lose 100% (or possibly more) of my investment.
Yes, I know some of the people taking out loans have low financial IQs and will probably never pay me back.
Yes, I know it seems too good to be true.
Then I started thinking... instead of using my own money, I'm certain I could borrow some money at an A grade (high FICO, low DTI, no revolving debt, homeowner, etc.) and then "lend" it back out at C/D/E grades. Just like a bank. Does Lending Club stop you from doing this? Can I play bank sitting in my underwear on the couch?
Oh, and inb4:
Yes, I know it's incredibly risky.
Yes, I know I could lose 100% (or possibly more) of my investment.
Yes, I know some of the people taking out loans have low financial IQs and will probably never pay me back.
Yes, I know it seems too good to be true.
4
Posted on 12/22/15 at 5:52 pm to geauxbears08
You're cost of funds would be way too high. You need to find a lower cost option.
A lot of hedge funds are already levering up these notes.
A lot of hedge funds are already levering up these notes.
Posted on 12/22/15 at 7:43 pm to geauxbears08
I participate in lending club and have a thread on here about it. That being said, what you're proposing is insanity. Would you do the same and sock that money into the stock market?
Those loans are in no way secure and could end up in a world of hurt quickly. Plus would you not re-invest your dividends/returned principal?
Those loans are in no way secure and could end up in a world of hurt quickly. Plus would you not re-invest your dividends/returned principal?
This post was edited on 12/22/15 at 8:18 pm
Posted on 12/22/15 at 9:37 pm to TJG210
The notes are not nearly as risky as you would think.
Posted on 12/22/15 at 9:47 pm to TheHiddenFlask
Understood, but if you invest solely in the lower grade of notes then you will probably have a higher amount of write offs than in a normal account.
I've been involved for roughly a year and have only have had 1 note written off, but I'm probably 30%A, 40%B, 20%C, 10%D
I've been involved for roughly a year and have only have had 1 note written off, but I'm probably 30%A, 40%B, 20%C, 10%D
Posted on 12/24/15 at 11:36 am to geauxbears08
quote:
Yes, I know it's incredibly risky.
Yes, I know I could lose 100% (or possibly more) of my investment.
Yes, I know some of the people taking out loans have low financial IQs and will probably never pay me back.
Yes, I know it seems too good to be true.
I looked into Lending Club about this time last year. I even submitted the initial paperwork. But I soon determined that the time needed to properly manage hundreds or thousands of notes simply wasn't there for me at that time. Maybe when I retire, I'll do it. I do find it to be a very interesting business prospect.
But as far as what you're asking, since you've already acknowledged the inherent risks, the only thing I'd question is what sort of spread would you be looking at between your borrowing rate and your average lending rate? If the net (ideally) is less than 5%, personally, I'd see the reward not being worth the risk.
I like the ballsy, opportunistic way that you're thinking. But yeah, that's like holding onto a lit rocket and hoping for the best.
Posted on 12/24/15 at 12:39 pm to Jag_Warrior
In that the op also needs to take into account the tax liability that the profits incur. At the end of the day that would eat into the spread as well.
As far as a time commitment, I have about 100 notes and the maintenance is pretty minimal.
As far as a time commitment, I have about 100 notes and the maintenance is pretty minimal.
Posted on 12/24/15 at 2:43 pm to Jag_Warrior
Grade A are in the 8% range and the lowest grades are in the low 20s. That's ~12% split before you account for defaults and taxes.
Posted on 12/27/15 at 9:16 am to TJG210
quote:
ower grade of notes then you will probably have a higher amount of write offs
yep. I've done it. LC is ok but private lending secured by RE is much better returns with less headache.
Posted on 12/27/15 at 10:44 pm to lynxcat
The idea is that you can do it infinitely with leverage.
The problem is that if you are borrowing at 8% and expecting to have a portfolio that yields 10-12% under ideal conditions, you simply don't have enough margin of error. Hedge funds are borrowing at sub 3% and taking that spread.
The problem is that if you are borrowing at 8% and expecting to have a portfolio that yields 10-12% under ideal conditions, you simply don't have enough margin of error. Hedge funds are borrowing at sub 3% and taking that spread.
Posted on 2/9/16 at 6:55 am to geauxbears08
I've opened up an account and have made deposits into a good amount of notes, but two notes got fully paid off within a day or two of being issued? Has anyone had this happen to them before? I wonder what is causing this behavior.
Posted on 2/9/16 at 7:38 am to GeneralLee
quote:
I've opened up an account and have made deposits into a good amount of notes, but two notes got fully paid off within a day or two of being issued? Has anyone had this happen to them before? I wonder what is causing this behavior.
I'm up to almost 60 notes. I had two that got paid off after maybe 1 payment. And a third that went a little late and then got paid in full.
I'd just say, "shite happens."
Posted on 2/9/16 at 7:40 am to Teddy Ruxpin
Why go through that whole process (credit app, another inquiry added to your credit report, etc.) just to pay it off in one day? Seems odd.
Posted on 2/9/16 at 7:45 am to GeneralLee
I'm sure I could come up with a few reasons but I'm not usually awake this early.
Posted on 2/9/16 at 7:54 am to Teddy Ruxpin
I'm targeting a 40% C, 30% D, 20% E, and 10% F allocation. Seems like my automated investing fills up with C's first and I have a hard time getting D-F's that meet all my filter's criteria (>5 years employment, >6k monthly income, no credit inquiries in past 6 months, no defaults, etc.).
This post was edited on 2/9/16 at 7:55 am
Posted on 2/9/16 at 8:24 am to GeneralLee
I'm at A- 5, B - 20, C - 50, D - 20, E - 5
I don't have those first 2 filters but I'm always looking to make mine better.
No issues filling my D's and the little bit of E's I do have though with my current settings.
ETA: Part of the problem may be that once you get past D, you are getting with all the rate chasers for a small amount of available notes, especially with all the "low risk" factors you have added in for an F note unicorn. They aren't going to use AUTO investing, which is slower and lags a bit than manual searching from what I understand.
I don't have those first 2 filters but I'm always looking to make mine better.
No issues filling my D's and the little bit of E's I do have though with my current settings.
ETA: Part of the problem may be that once you get past D, you are getting with all the rate chasers for a small amount of available notes, especially with all the "low risk" factors you have added in for an F note unicorn. They aren't going to use AUTO investing, which is slower and lags a bit than manual searching from what I understand.
This post was edited on 2/9/16 at 8:28 am
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