Let's talk about peer-to-peer lending!!

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Let's talk about peer-to-peer lending!!

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

So what are the usual delinquency and charge-off rates per year? I've been doing this about 6 months now, I have ~370 notes, and none of them have ever gone past the grace period.

Seems low, givens the 2-5% historical rates. I'm using a custom filter on Prime, but I don't actually have any actuarial training to claim I know what I'm doing.

# ¿ Apr 30, 2014 23:30

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# ¿ May 1, 2024 23:16

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

LC is supposedly looking into expanding for things like auto and small business loans. They already have a small business operation running but the general public can't fund/invest in it yet. I imagine getting the risk and interest rate modeling right is something that takes a while and they don't just want to throw open the flood gates and end up like Prosper c. 2008.

Right now it's almost entirely refinancing credit card debit and other revolving credit lines.

# ¿ May 14, 2014 21:35

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

JulianD posted:

Someone correct me if I'm wrong, but I don't believe that what you're claiming is (completely) right. You'd have to do a pretty thorough analysis to determine the best savings route, and regardless, figuring out how much you'd save through traditional retirement accounts requires guesswork.

A 401k is tax free but only initially. You make deposits to the 401k prior to your income being taxed, but when it is withdrawn later during retirement, it is taxed. If you have an employer match, that can also make a 401k more attractive.

If you're depositing into an IRA, you're depositing money that's already been taxed; when you withdraw from it during retirement, it is not taxed at that time.

The guesswork I mentioned before is that there's no possible way to know what tax rates will be when you withdraw from those accounts during retirement. Higher tax rates in the future mean you saved money in taxes on an IRA but not on a 401k (and vice-versa if tax rates are lower). More guesswork comes into play given you don't know what your returns through an IRA or 401k will be, whether an employer match on a 401k will make up for that, whether there is greater risk in LC than traditional retirement vehicles (I personally believe there is), etc.

TL;DR: It is significantly more complicated to figure out the best investment strategy than what you've boiled it down to.

Regular IRAs are tax free at entry, taxed when you withdraw at retirement. Roth IRAs are taxed at entry, but all retirement withdrawals are tax free.

401k and Roth-401k accounts are similar except they are employer sponsored.

IRAs also have certain income limits that prevent how much money you can deposit or the tax benefits. Of you are above the IRA income limit and already have a employer 401k contributing to an IRA makes little sense because you'll get none of the tax benefits but won't be able to take your money out. Just get a traditional brokerage account in that case.

I'm also generally I'm favor or Roth flavored accounts, because your gains are tax free. Which pile of money would you rather tax? 100k now, or 350k when you retire? Unless you expect a drastic reduction in lifestyle, tax rates, or market returns when you retire, a Roth makes more sense.

Anyway, anyone needing advice on this should probably talk to a real accountant or financial planner, since there is lots of complications for individual situations. Also it's nice LC offers IRA accounts, but I don't think its really appropriate for retirement accounts given how new it is and that there is only one asset class available for investing.

# ¿ May 15, 2014 12:51

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Nail Rat posted:

Does anyone know whether there's a specific reason that Lending Club fund deposits take forever and a half?

My guess is that ACH transactions can be reversed within a certain number of days. For things like paying your credit card, car loan payment, etc, the financial risk of a reversal isn't that high: They would just mark it as unpaid. Banks can just lower your account balance if it's reversed, or put a hold on cash withdrawing for that number of days if they think a transaction is a high risk of reversal.

Lending Club probably doesn't have the ability to easily fix things if you deposited $10,000, bought a whole bunch of notes, and then reversed the ACH deposit. At best they could probably take your 10,000 in note holdings away, which isn't assets they want to put on their books, and also an opportunity for criminals to launder money from hacked bank accounts to shell borrowers.

It's the same reason other criminals use money mules. They send you a reversable ACH transaction for $5,000, then have the mule send an irreversable transaction for $4,000 through Western Union or something. The Mule gets greedy and thinks he's making an easy $1,000, but when the original bank account victim discovers it, the ACH deposit for $5,000 is reversed and they are out $4,000 to the criminal, and the person with the hacked online banking account is made whole.

# ¿ Aug 27, 2014 20:28

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

I thought their small business loans weren't open to funding from the general public yet?

# ¿ Sep 20, 2014 00:29

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

I have ~700 notes now, and somewhere between 1-3% will end up being charged off if things follow the current trends. It's more or less built into the my investment assumptions, and if the default rate stays at that, it's not too bad. That's why you have lots of notes of the minimum amount of $25. 11-14% minus 1-3% defaults gives you returns of of 8-11%, which is pretty good for a mostly passive investment.

If it starts to creep up significantly in a very short amount of time then I'd start to worry.

# ¿ Dec 4, 2014 17:29

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Bloody Queef posted:

I've been going through trying to figure out exactly what the change was due to. I'm probably still in on it, but I probably won't get more than 250 shares.

As near as I can tell, it's largely charges for a whole bunch of people, current and former employees, exercising options. Considering their IPO is coming up, that makes sense it would all be stacked up at once.

# ¿ Dec 5, 2014 00:09

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Anyone else get shares in the IPO? I just got allocated 250.

# ¿ Dec 11, 2014 16:28

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Moneyball posted:

LC is now available in Massachusetts.

I got burned before by Prosper, but that was kind of my own fault. Should I jump aboard?

I used Prosper back during the dark days of 2005-2007. Default rates seem to be much better this time, around 2-4%, and they are much more selective in screening loans. Probably half to a third of the loans don't get issued after funding because they fail LC's vetting. Setting up the automatic investing and only buying the minimum $25 amount on each loan seems to do the trick. Also, there's almost zero of the "expanding my ebay business!!!11oneone" loans that I remember from Prosper, it's almost all CC refinancing.

That said, there's always the chance the economy and credit environment does another swan dive and all their statistical models go in the toilet, so don't make LC 100% of your investment portfolio.

# ¿ Dec 17, 2014 20:03

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Devian666 posted:

I had my first bad debt note in the last month. Someone managing to go broke less than 9 months after the peer to peer service was launched must have been a dire situation.

I've stopped even caring about individual defaults at this point. I basically just check in every now and then to make sure the rate is under 5%. Once you get several hundred notes being reinvested through AI, the impact of any one $25 slice isn't a problem.

Makes tax documentation a bit of a pain though. I had to really dig to find that PDf they made about what forms to use.

# ¿ Jun 24, 2015 11:51

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

LorneReams posted:

Hard to model.

Whooooooooosh!

# ¿ Jun 30, 2015 16:34

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Although to be fair that was dad joke quality humor.

# ¿ Jun 30, 2015 16:35

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

For losses, I actually dug up a PDF lending club made for tax forms. There's like a sub-form you can enter where you just put a summary of losses then attach LC's generated summary with losses itemized, rather than enter each one by hand.

# ¿ Jun 30, 2015 20:21

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

CHARLES posted:

I got my first one too this past week. It made me start to wonder about the secondary market. Does anyone have any experience delving into that side of LC?

I don't even care about individual notes anymore. I'd you have 200 notes that's $5000 in principal. If 4 of those are suddenly not paying then that's 2% off your rate of return. There's nothing you can really do about it anyway except have enough total notes that your exposure to defaults spread out. After accounting for that, my rate of return is like 7-9% which is pretty decent.

# ¿ Aug 27, 2015 12:04

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Yeah anything that returns 18% yoy for 20 years without periods of dramatic, terrifying losses is going to be bid up to returns much less than 18% eventually.

# ¿ Sep 22, 2015 23:18

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# ¿ May 1, 2024 23:16

mrmcd: Feb 22, 2003; Pictured: The only good cop (a fictional one).

Also the returns are like 6-10% so it's a nice diversification for almost zero effort, but it's not amazing or anything.

# ¿ Dec 26, 2016 04:18

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Let's talk about peer-to-peer lending!!