While I am active with Lending Club through deposits and selecting of new notes every two weeks there isn't much to report on a frequent basis. I think that's fine because that's the nature of P2P Lending. You are spending your time getting small notes at a time to build up a large enough portfolio to where an individual note isn't going to make or break your portfolio.
Lending Club changed the way they report fees
In my last quarterly Lending Club update I mentioned how the fees and interest payments weren't adding up. I was later contacted by Lending Club and was told that they used to round off their numbers to the nearest penny on the activity page it was not rounded off on your statement. Then in March they switched over to fractional pennies.
Charged fees for a loan paid off
My previous stint with Lending Club several years ago had a bunch of fees on my statements. I was concerned that I was going to have 3%+ in fees which would really cut into my profits alongside defaults and taxes.
Most of the time Lending Club will charge $0.01 in service handling fees when a payment is made. That's fine they are a business and need to make money. Every now and then though the service handling fee jumps to $0.20 or more. When you compare that to the interest payment of $0.40, well now I'm not so ok with LC taking half my profit.
It doesn't happen often though so whats driving this large fee? Delving deeper into which loans get charged this huge fee I find it that it occurs every time a loan is paid off. I have a huge problem with this.
I'm happy that a person paid off their debt and improved their lives, its one of the reasons honestly I am doing LC but why charge me the lender for it? The only thing I can think of is LC has lost future payments and is taking it out on me. I'll have to contact LC for more information.
For June my interest was $24.15 and fess were $1.05... 4.3% in fees not even mutual funds charge that anymore.
You may be wondering why I am harping on fees so much between 1% and 4%. Whats the big deal? The big deal is in looking at the final net gains after everything.
I have an average weight of 21% yield. Figure an 8% default rate brings me down to 13%. Fees of 4% drop me down to 9%. Last but certainly not least is taxes. Taxes are on the interest BEFORE everything else because that is how much I get paid then fees are charged afterwards. A 25% rate means I lose 1/4th my interest... another 5%.
So am I down to a 4% gain? If so why am I spending my time several times a week searching for and buying more notes when I could just by a bond ETF and be done with it.
If the fees are only 1% long term.... ok then my actual gains I get to keep are now 7%... nearly doubled. THAT'S why I am so focused on fees and every little detail.
Right now with my portfolio of 100 notes its much easier to find and analyze what happens at the single not level. When I have 500+ notes I am not going to want to be doing that. The time it would take for the amount of profit isn't worth it to me.
Still testing and learning
With all the above said, I realize I am new to Lending Club. I was wrong before with the statements and I am hoping I am wrong again. I'll continue watching and testing out Lending Club. I want at least 1 full year of numbers and data with a large amount of loans and I haven't really started. The first several months of 2014 was with a handful of notes. I really need 100+ notes for 1 year to get a good data sampling. Now yes LC offers numbers at stats but I want to see the numbers for myself.
My adjusted net annualized return keeps on climbing. I had a default early back when I was first with Lending Club really mess up my averages as I only had maybe a dozen or so notes back then. Each month that passes increases that. I'll take another hit when the Late 30-120 note falls off into default category. But that is the name of the game. You have to look at a portfolio wide view of all your notes together and just accept that you will have defaults.
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
Lending Club changed the way they report fees
In my last quarterly Lending Club update I mentioned how the fees and interest payments weren't adding up. I was later contacted by Lending Club and was told that they used to round off their numbers to the nearest penny on the activity page it was not rounded off on your statement. Then in March they switched over to fractional pennies.
Charged fees for a loan paid off
My previous stint with Lending Club several years ago had a bunch of fees on my statements. I was concerned that I was going to have 3%+ in fees which would really cut into my profits alongside defaults and taxes.
Most of the time Lending Club will charge $0.01 in service handling fees when a payment is made. That's fine they are a business and need to make money. Every now and then though the service handling fee jumps to $0.20 or more. When you compare that to the interest payment of $0.40, well now I'm not so ok with LC taking half my profit.
It doesn't happen often though so whats driving this large fee? Delving deeper into which loans get charged this huge fee I find it that it occurs every time a loan is paid off. I have a huge problem with this.
I'm happy that a person paid off their debt and improved their lives, its one of the reasons honestly I am doing LC but why charge me the lender for it? The only thing I can think of is LC has lost future payments and is taking it out on me. I'll have to contact LC for more information.
For June my interest was $24.15 and fess were $1.05... 4.3% in fees not even mutual funds charge that anymore.
You may be wondering why I am harping on fees so much between 1% and 4%. Whats the big deal? The big deal is in looking at the final net gains after everything.
I have an average weight of 21% yield. Figure an 8% default rate brings me down to 13%. Fees of 4% drop me down to 9%. Last but certainly not least is taxes. Taxes are on the interest BEFORE everything else because that is how much I get paid then fees are charged afterwards. A 25% rate means I lose 1/4th my interest... another 5%.
So am I down to a 4% gain? If so why am I spending my time several times a week searching for and buying more notes when I could just by a bond ETF and be done with it.
If the fees are only 1% long term.... ok then my actual gains I get to keep are now 7%... nearly doubled. THAT'S why I am so focused on fees and every little detail.
Right now with my portfolio of 100 notes its much easier to find and analyze what happens at the single not level. When I have 500+ notes I am not going to want to be doing that. The time it would take for the amount of profit isn't worth it to me.
Still testing and learning
With all the above said, I realize I am new to Lending Club. I was wrong before with the statements and I am hoping I am wrong again. I'll continue watching and testing out Lending Club. I want at least 1 full year of numbers and data with a large amount of loans and I haven't really started. The first several months of 2014 was with a handful of notes. I really need 100+ notes for 1 year to get a good data sampling. Now yes LC offers numbers at stats but I want to see the numbers for myself.
My adjusted net annualized return keeps on climbing. I had a default early back when I was first with Lending Club really mess up my averages as I only had maybe a dozen or so notes back then. Each month that passes increases that. I'll take another hit when the Late 30-120 note falls off into default category. But that is the name of the game. You have to look at a portfolio wide view of all your notes together and just accept that you will have defaults.
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
Regarding the fees: Lending Club charges their fee on payments, not on interest earned. So, if the borrower makes normal payments, you'll pay (lose) about 1% over the life of the loan. You're correct that an early payoff can really hurt. You can actually lose money if it's paid off very early! But fortunately that doesn't happen very often.
ReplyDeleteRegarding taxes: Lending Club reports earnings after reduction by fees. That is the amount you should be paying taxes on. And you shouldn't be forecasting your taxes on your hypothetical 22% before write offs, but against what you're really going to receive after the write offs. You don't pay taxes on what you don't receive. Also remember the principal of those write offs is itself deductible as a loss.
I'm at about 9.5% (before taxes) over the long haul (4 years) after dees and write offs, with notes averaging about 12%, about 1000 notes, always reinvesting.
Ah ha! So its a % based upon the size of the payment. I had thought it was a % of the interest paid. Well that sucks cause yeah, an early payoff means I lose some of my principal to fees.
DeleteDefault/Write off loss is a deduction. Makes sense I hadn't thought of that and that helps.
Fees lower taxes. Hadn't thought of that. Would it be considered a business expense type of thing? Not sure I understand why that would lower personal income tax. Seems more like a business deduction.
At any rate thank you for the info Larry. Its appreciated!
Pulling, I purchased a note $22.30 ($21.57 principle). Within a week of this purchase the loan was paid off. I for the payoff payment I received was $21.55 after paying $0.22 service fee. This was literally a 3% loss over a few days...
ReplyDeleteMy strategy for LC is pretty close to the one you outlined on your blog, after a year of doing it the website says I have averaged an 18.55% adjusted net annual return.