In brief, your “understanding risk” handle is the joke of the day as you do not understand risk and you are just acting in bad faith under a cowardly anonymous cover. Do you have any credentials in the field, or are you just thrashing companies to compensate for your own failures?

That rate varies from 0.75% (for the highest FICO score borrowers) to 3.50% for most. That means on a blended basis, you’re paying approximately 3% in origination fees on top of the 1% service fee being charged by Lending Club.

The real rate of return therefore isn’t 9.05% but 6.05%. That’s about 2x the best short-term CD out there for a lot more work and a lot more risk. It might be worth it if we were talking about being able to invest millions into LC, but the volume isn’t there so the time isn’t really worth it.

Run after chump change if you wish.

FICO is based on repayment rates for things such as auto loans (secured), homes (secured), student loans (unsecred but can go into forebearance, cannot be wiped out in bankruptcy), AND credit cards (unsecured).

Credit card companies spend millions of dollars analyzing FICO scores. The score alone is not sufficient to make strong risk-adjusted decisions.

I’m thrilled that you’re doing well but from a broader world view, you’re doing better than the median and mean lender on LC or other sites like it.

Your simplistic model is something that on a macro level would not provide positive risk-adjusted returns.

The rates on LC are not significantly better than other forms of unsecred debt for those with really high abilities to pay back. I’m not saying the credit markets are perfect but at the same time, I don’t think credit card companies are dumb. They are some of the most data-driven, well managed types of financial firms out there.

They’ve sat down and made the decision that at a macro level, credit limits need to be decreased and have far more data including geographic patterns of default, likelihood to default based on where the consumer is shopping (AMEX does this, if it sees you shopping at Dollar stores, ALDI, etc., it cuts your credit), and cross-data from other credit suppliers and utility companies.

At an individual level, you may make money, but the point of risk-adjusting returns is to ask yourself, “Am I lucky or am I actually utilizing my capital more efficiently because of some market inefficiency.” It’s a little of both in your case but more luck than the latter.

Good luck to you but caveat emptor to everyone.

In addition, with their own skin in the game to the tune of millions of dollars they are much more likely to take collections seriously. Their interests are closely aligned to the success of the borrower.

There is nothing fundamentally wrong with LC funding their own loans; in fact, your argument that you link to doesn’t even make a case for that. The only thing you identified is if you were one of their VC’s, you “would be pretty scared” by this practice. I suppose you couldn’t be more wrong about that as evidenced by the headline of this article we are commenting on.

With regards to their lack of transparency, you’re wrong again. Firstly, as a requirement of the LC SEC filing, they are required to publicly disclose matters of this nature, so there in fact is all the transparency in the world. If on the other hand you are talking about transparency vis-a-vis Prosper, well then maybe you don’t fully understand the nuances between the two models. Prosper is attempting to create a true marketplace, and in order for it to function as a marketplace according to its textbook definition, it *must* disclose all data and information in a timely manner in order for that market to perform efficiently. LC makes absolutely no claims about being a marketplace in the way Prosper desires, and thus has no obligation to publish its borrowing/lending statistics in the same manner as Prosper. Is it a nice to have? Sure? Is it a must have? Definitely not.

I think you are trying to make something out of nothing with your comment, and are probably losing credibility as some sort of “authority” on the space with shallow, unqualified statements like these.

I say kudos to LC for being the first to provide borrowers and lenders with a safe, secure, and regulated alternative to the “big boys” who are largely responsible for where we are today.

As for that 9.05%, that’s where the annual average return now stands across all the site’s current lenders, but any individual lender can set their own preferences. With my account for instance, I’ve set up a few different portfolios, different risk levels from low to high, have monitored their varied performance levels with respective expectations etc. … as for how much my portfolio matches “most” or not, no idea. Just what works for me.

Most LendingClub portfolios are not well diversified nor is the profile of those being lent to usually that great. Their collection procedures are decent but nothing to go ga-ga about.

I’m sorry but from a purely financial standpoint, I’ll stick with a 3% CD than a 9% social lending porftfolio that carries massive volatility due to a lack of diversification, lack of collateral (these are unsecured loans), and inherent bias in who turns to a site like this to obtain capital. The reason that things like Microfinance work (and that too barely, the margins are tiny) is that there is massive social capital involved. That’s not the case online unless your loan is being backed up by 5 friends or something like that.

To those of you who don’t understand this, please use a site like Investopedia to learn it. Your understanding of personal finance is important to the health of our country.