Peer-to-Peer Lending – Lending Club Investment

Peer-to-peer lending has been around here in the United States for the better half of a decade. This type of lending environment strives to bring both individual and institutional investors together with various grades of qualifying borrowers. The two main companies in the peer-to-peer lending arena are Lending Club and Prosper, with both having over five years of lending history. Since inception, these two facilitators have seen tremendous growth and change as they have developed and created an entire market for this type of lending.

Using proprietary underwriting standards, both Lending Club and Prosper set various grades for each borrower, based on each borrower’s individual credit history, income, and overall credit profile. Borrowers can find some in-depth detail on the grading process and other tips for borrowers at Lend Academy, a great website and resource run by Peter Renton, an accomplished peer-to-peer lending blogger.

Fortunately, through the various struggles I’ve come across financially, I have never had a revolving debt issue, or the dire need of funds, so I will be focusing on the investment side of peer-to-peer lending. Both Prosper and Lending Club offer a wide variety of investment options, from regular taxable accounts, to Roth and Traditional Self-Directed IRAs. Currently, I have two accounts at Lending Club, a traditional taxable account and a Roth IRA account.

The first, the taxable account, was started with a small $25 dollar giveaway in the spring of 2009. From there, I grew that account to approximately $2,500 dollars with small $25 and $50 dollar investments. After seeing some success over that time frame, and using the account as a guinea pig to learn the nuances of peer-to-peer investing, I decided to open the second account. This past November I rolled $10,000 from my Roth IRA into a new Lending Club account.

Going forward, I intend on doing a monthly post summarizing my investments in Lending Club, with a focus on the Roth account. I am in the process of selling and shutting down my taxable account, and do not foresee this account lasting through the end of 2013. Due to the tax complexities with peer-to-peer lending, I would prefer to take advantage of the tax sheltering IRA. I will be writing a post about the process I’ve undergone in extracting myself from the taxable account.

Below you will find a snapshot of my Roth IRA account as of February 1, 2012. As this is a relatively new account, I have a significant amount of money still waiting to be invested.


Account
Balance
12/31/12
Balance
2/1/13
Net Interest
Period
Net Interest
TTM

XIRR Return

LC NAR
LC - Roth IRA$10,001.62$10,039.79$38.17$39.791.98%21.71%

Some Final Notes

As expected, my XIRR (an Excel formula calculating the internal rate of return) is significantly lower than Lending Club’s Net Annualized Return (NAR) as Lending Club does not include any idle money in their figure. As the months progress, you will see my XIRR return gain steam as I become fully invested in notes.

Included in the chart above is the period interest, in this case monthly amount, followed by the amount received over the previous 12 months (TTM). While insignificant now, as this account ages, one will be able to see how trailing interest figure grows, demonstrating an ability for this account to compound and one day produce income to supplement my retirement.

Be sure to track and follow my Lending Club returns as I will be updating them monthly!

Has anyone else invested in Lending Club or Prosper?

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