Author Topic: Take on debt and put it in Lending Club?  (Read 1208 times)

toben88

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Take on debt and put it in Lending Club?
« on: April 25, 2018, 02:51:22 PM »
Recently I needed to buy a truck and could have paid cash. Instead I got a 6 year loan at 2.99% and put the cash into lending club.

I have been doing this a few years now and appear to have a final return of 8.5% while investing in C, D, and E loans with my own secret investing strategies.

Is anyone else racking up debt on other assets to put money into Lending Club? Anyone think this is a bad idea?
« Last Edit: April 25, 2018, 04:52:54 PM by toben88 »

AnilG

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Re: Take on debt and put it in Lending Club?
« Reply #1 on: April 26, 2018, 04:33:46 AM »
There was detailed discussion about it few years ago. It is a bad strategy as there is not enough spread between borrowing rate and return to safely make such a bet. If you were borrowing at sub 1%, it may be good to do but definitely not at 2.99%. You should also realize that 2.99% borrowing is backed by a collateral but return is not guaranteed.

Your 8.5% return is phantom, it is only true as long as you continue to reinvest the repayments. Once you decide to stop buying new loans and start liquidating your account, your return will start declining as interest amount in repayments received will decline and may not be enough to meet the losses resulting from defaults. See RobL's thread about monthly interest to loss and net monthly proceeds that he regularly updates. It is very informative. Ask people who have liquidated their accounts or stopped buying loans about what their final return were. What they put in and what they got out in the end.

Recently I needed to buy a truck and could have paid cash. Instead I got a 6 year loan at 2.99% and put the cash into lending club.

I have been doing this a few years now and appear to have a final return of 8.5% while investing in C, D, and E loans with my own secret investing strategies.

Is anyone else racking up debt on other assets to put money into Lending Club? Anyone think this is a bad idea?
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PeerCube Thoughts blog https://www.peercube.com/blog
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bobeubanks

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Re: Take on debt and put it in Lending Club?
« Reply #2 on: April 26, 2018, 11:15:22 PM »
Ask people who have liquidated their accounts or stopped buying loans about what their final return were. What they put in and what they got out in the end.

While I agree borrowing to invest in notes is a bad idea*, I don't see the post-reinvesting situation as necessarily dire as you do. While I'm not completely closed out of my Prosper account (I have a handful of 5 year notes still with a few months left to go. About $40 in principal.) I've been happy with my results.  I made initial purchases in August and September of 2013 and reinvested until April 2014. Been withdrawing ever since. I've withdrawn 1.19x what I invested. Prosper claims my ANR is 9.74%. A very simple pessimistic annual return calculation would be 19%/5 years = 3.8%.

For what it is worth, I choose a conservative approach with the bulk of my notes being B and C grade and I had very few defaults - charge offs/initial investment = 2.8%.

*I actually think any investing in Prosper or LC is ill advised at this time.

AnilG

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Re: Take on debt and put it in Lending Club?
« Reply #3 on: April 27, 2018, 05:09:55 AM »
Performance of your portfolio is a good indication of why borrowing at 2.99% to lend is a bad idea.


I made initial purchases in August and September of 2013 and reinvested until April 2014. Been withdrawing ever since. I've withdrawn 1.19x what I invested. Prosper claims my ANR is 9.74%. A very simple pessimistic annual return calculation would be 19%/5 years = 3.8%.
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Ryutaro Hashimoto

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Re: Take on debt and put it in Lending Club?
« Reply #4 on: April 29, 2018, 01:32:49 AM »
Don't invest borrowed money in LC.  I do same in much bigger scale (200k+). There are other platforms with lower risk and higher return.

MarinBB

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Re: Take on debt and put it in Lending Club?
« Reply #5 on: April 29, 2018, 03:04:27 PM »
Don't invest borrowed money in LC.  I do same in much bigger scale (200k+). There are other platforms with lower risk and higher return.

Go on...

Edward Reid

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Re: Take on debt and put it in Lending Club?
« Reply #6 on: May 02, 2018, 05:19:14 PM »
Yeah, borrowing to invest is almost always a bad idea unless you have a guaranteed return, and I mean like FDIC insured. IOW, at least as certain as the debt you owe.

Your 8.5% return is phantom, it is only true as long as you continue to reinvest the repayments. Once you decide to stop buying new loans and start liquidating your account, your return will start declining as interest amount in repayments received will decline and may not be enough to meet the losses resulting from defaults.

How do you figure this? The interest rate doesn't change as the principal declines. Are you saying there are more defaults late in the life of loans? Are you calculating the return on the assumption that you don't reinvest repayments anywhere, just leave the cash sitting there? Something else?

Edward

rawraw

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Re: Take on debt and put it in Lending Club?
« Reply #7 on: June 09, 2018, 06:51:04 AM »
I don't think borrowing to invest is always bad. I think there are benefits to buying the stock market with leverage. But generally not a good idea to borrow money to invest in higher risk bonds

Reginald

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Re: Take on debt and put it in Lending Club?
« Reply #8 on: August 24, 2018, 12:55:21 PM »
To reduce risk, I would *only* borrow money from lenders who dont care whether or not you pay them back. Like, uhmm, for example Lending Club.  ;D

Harvey

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Re: Take on debt and put it in Lending Club?
« Reply #9 on: August 26, 2018, 02:00:32 PM »
They will chase you if you default on the debt. Not a good idea. Diversify your investments very carefully.
There is one platform where you can get to know the borrower personally: www.beelend.com.