Do LendingClub borrowers repay their loans? A look at one week of cash flows from these peer to peer loans.
LendingClub Loan Cash Flows
As I mentioned in last weeks post, there are active weeks and off weeks. Lenders, including those providing Peer to peer lending, work to match payments with borrower’s paycheck cycles. The active weeks tend to be around the 1st and 15th of each month, which coincides with a lot of people’s pay schedules. The off weeks cover the rest of the month. This week was an active week with greater than expect Loan cash flows.
I expect to receive just over $400 in principal and interest payments every month. That fluctuates somewhat depending on early and late payments. However, this week, I received a surprising $373.08 in payments from borrowers. A significant portion of this cash flow came from one loan repaying early.
So, this week my portfolio performance was mixed. That’s somewhat typical of peer to peer lending. On the plus side, several loans that were late or in their grace period returned to a current status. The unexpected early payoff of a loan is good, but not necessarily great. A significant negative, I had one loan progress into default after several months of non-payment. I expect this $105 in principal to be charged off soon.
Peer to Peer Loan Cash Flow Risks - Prepayments & Late Payments
Most investors recognize non-payments and late payments as significant risk factors. Prepayment risks are not necessarily an obvious risk to your portfolio and cash flow. While not as detrimental as defaulting loans, it is still something to be aware of and understand.
This screenshot shows the loan cash flows for my account this week. Most of them are typical daily payments, except the payments received on September 28th. This day’s $270.72 stands out as atypical and brought this weeks cash flow to almost 95% of my monthly expected cash flows. The majority of this came from a prepayment of $185, which paid off the principal balance of one of my loans.
Are prepayments bad? Not necessarily. The prepayment risk primarily focuses on the risk of not being able invest in a new loan of equal quality and interest rate. LendingCLub originates a lot of loans, so you should be able to replace a prepaid loan with a new issuance similar to the one you lost. The bad part is that I only earned $17.47 in interest on this loan. That’s well below the $63 I was expecting to bring in this year from that loan.
Investments Made This Week
Last week, I covered some of the main criteria I use to evaluate peer to peer loans. I won’t go into that kind of detail again. I’ll simply post the screen shot and break it down to what I like and dislike. I will mention a slight shift in my strategy. As the economy is struggling, I’m leaning more toward loans that are in the $10,000 range. The lower sized loans may be more manageable for the borrower in the event of a loss of employment or major life change, e.g. death or disability.
With the added cash flow this week, I made 2 investments – one for $100 and another for $250.
What I like:
- Verified income
- Monthly payment less than 5% of the gross income
- Older individual – assuming 1st credit line at 18 they should be mid-40s
What I dislike:
- No job title/length of work given, so its hard to guess how insulted they are from economic downturns
- Lots of credit card debt and this loan does not wipe it all out.
- Delinquency within the past 18 months
- 5-year loan – greater risk of default
What I like:
- Verified income
- Monthly payment around 10% of the gross income
- Older individual – assuming 1st credit line at 18 they should be mid-30s
- 3-year loan – slightly lower risk of default
- Loan amount almost equal to revolving credit balance
What I dislike:
- District Manager – infers retail or food industry. Could be susceptible to an economic downturn
- Delinquency within the past 18 months
Clearly, I find the 5-year loan more risky than the 3-year loan. While I can’t receive a higher interest rate for the 5-year loan, I can offset the risk by investing a lower amount than I normally would. Why not put all $350 into the 3-year loan? Well, I want to continue to diversify – just in case.
Disclosure Statement
The statements in this post are my opinion and reflect my personal experience as an investor in peer to peer lending through LendingClub’s platform. I cannot, and do not, guarantee that your results will be similar. Please, invest carefully and understand that your investment may lose value.
I do not receive compensation from LendingClub for writing or maintaining this post. However, I do receive an affiliate commission if you use the link below to open an account to invest or borrow.
Return to LendingClub Post
Like What We're Doing?
The post Peer to Peer Lending Cash Flows appeared first on What to Invest in Today.
