As you can see in the graphic to the right, I'm finally out of the negative return area with Lending Club. In fact, since the last time I posted an update, my returns have increased by roughly 5%. To make sure my returns increase, I've changed how I look at investing with Lending Club.
How, specifically, have I adjusted my investing strategy with Lending Club? Well, in the first place, I've increased the number of loans that I hold. As I mentioned before, having so few loans in the first place is really what caused the one default to affect my returns so grievously. As of today, I have 36 loans, all of which are current in their repayment. I do plan to keep investing more with Lending Club, but I'm holding off until I get a better sense of how much I'm going to be able to work when I go back to grad school in a few weeks.
The other way that I've changed my strategy is that I am much more vigilant now concerning late payment. As you may know (and as you probably know if you're reading this in the first place), Lending Club has a trading platform with which you can sell off any of your notes at whatever price you choose (assuming you can find somebody to buy them). The drawback is that Lending Club charges a 1% fee per note sold.
How exactly have I been more vigilant? Well, as soon as I notice that one of the people that I've lent to misses a payment, I put their note up for sale. I start the price at what is owed plus the current amount of interest, and I adjust that price downwards every few days until somebody purchases it. My thought is that it's better to get most of my money back on that note, even if I end up selling it for a loss. That is, a small loss is more appealing to me than the prospect of getting larger returns due to extra charges to the borrower that accompany late payment with the risk of a large loss (the entire value of the loan).
Perhaps I'm oversensitive on this topic, but after the one note defaulted (by someone who later filed for bankruptcy), I want to limit my risk with the notes as much as possible. As I mentioned, Lending Club does charge late fees for people who are late with a payment (which would mean extra money if the borrower brings themselves up to date with their payment), but I'm a happier person by selling the notes off and not having to worry about them.
What do you think? Am I too conservative in my Lending Club approach? Let me know in the comments.