Returns? They'll depend. I see many investors that swear by buying "safe" A and B grade notes. With all things being equal, they've pretty much limited their upside returns to something in the 4-12% range before taxes, making assumptions that everything (the economy, job situations, etc) are the same for the next 5 years as they've been for the last 5. I say that because every bit of data used and all the automated systems are using historic data from a statistically small slice of time during which borrowers faced an extremely difficult economic/jobs situation. And we have no idea whats going to happen going forward. This is not as bad as looking at the stock markets performance for the last 5-6 years and presuming that the next 5-6 will be about the same, but its in the ballpark.
Investors that go for high risk/high default rate loans will probably come out ahead. But asking what they have now depends on when they started, their note selection criteria (which probably changed over time), whether they're buying notes just to resell to take advantage of the shortage of notes and states that don't allow new loan purchases, etc. Things that may be resolved sooner or later. Many are also taking advantage of what I'm guessing are poorly educated buyers on the secondary market. That might "improve" or not. Many also have a bulk of their portfolio that was assembled when decent notes were available almost around the clock, or they've added risk by employing a 3rd party buying service. Now "good" notes are less available, only for short times, and only if you have fast fingers or use an automated tool, although those haven't even been fast enough at times recently.
When I first evaluated LC as an asset class I did look at the historical data but frankly discounted it to a good degree because it was negatively tilted as having occurred during the worst economic period in decades, because the systems and investors were very new, and because lenders and borrowers weren't as savvy to the process as they are now. Consider selling on ebay the first two years it was around vs today, if you have that experience.
So after having a look at the longer term effects such as the number of people likely to die while you're holding their unsecured loan, the lean towards people who think consolidating ALL of their debt to get "one payment" when the interest rates on some of it was lower or the people who think paying 25% for a car loan is a good idea (these folks are financial idiots, and they'll manage their money appropriately), the odds of a second dip in the economy or continued sideways malaise like we had in the 60's-mid 80's, the likelihood of a surge in inflation, etc...I came to the conclusion that even a pedestrian lender should be able to make at least 5-6% and someone doing it for 20 years with a decent education in note picking could probably do as well as 12 or 13%. I think anything over that would involve lots of work exploiting the inefficiencies in the system and keeping up with those as they'll change over time and the window may become narrower and narrower, and the competition for those inefficiencies greater.
So IMO this is akin to asking people who just started investing in the stock market in 2008 or 2009 and only have data going back that far what their returns are and what they expect. Probably not a whole lot like what its going to be for the next 5-6, and probably not the same as the 5-6 after that.
The current darling strategy of E-G notes that meet certain criteria may turn badly if some aspects of the economy go south. If inflation comes roaring in, the Fed has absolutely not one thing to use except driving up interest rates, and costs may force many people to decide whether to buy food and pay the rent or pay their LC loan. Businesses will reduce head count, raise prices, and many that are just barely making it will go under. Unemployment will surge. You may see 30-40% default rates on those 'on the edge' borrowers. That may be a low estimate.
My feeling is that I can get at least 5-6% out of this even if things go badly, and that's just way better than anything else out there given the current levels of the stock market, persistent low interest rates on fixed income, rising real estate prices in my region, etc. Sucks to take on this much risk, but that's a much better return than I can get with a bond or a cd. If I do better I'll be happy, but I also have taken this on as a shorter term investment and don't plan to do it for more than another 4-5 years. In fact, given the lousy performance of the web site, the poor availability of notes, the reported errors in processing correct payment amounts, etc...I'm just going to let what I own age out and hope I can get a lower risk fixed income asset class to replace it in the next 3-5 years. I'm doubtful of seeing that as I think it'll take 7 or 8 years to normalize interest rates without killing the economy, but LC is starting to look like a ship that's taking on water. Things usually look at their best when a company is approaching an IPO. This doesn't look that great considering the range of problems but without reading this site I might not even be aware of some of them, although they do have an effect.
Plus like rlv99 I've used this as a bit of a hobby as well, so there's that...
