Friday, July 17, 2009

First Lending Club payment fully posted to my account

Since I posted yesterday about the first payment on my first Lending Club investment loan which was due five days ago, the updating process has completed and the first payment has been fully credited to my account. Done! Technically, I probably should say that it took four business days for the payment to post after the payment due date since the payment was due on Sunday.

The payment amount for my $25 share of a $7,700 motorcycle loan was $0.83, consisting of $0.26 accrued interest and $0.57 principal repayment. Lending club charges a 1% service fee, which was $0.0083 or rounded up to $0.01, so my net payment was $0.82, which was simply added to the cash sitting in my Lending Club account (which earns no interest unless I reinvest it.)

My rough calculation suggests that the 1% service fee reduced my nominal 12.53% interest rate by about 0.48% to roughly 12.05%. Still very decent. Over the term of the loan that discount to my rate will rise since although the monthly payment stays the same and the service charge is based on the total payment, the interest portion of the payment trends down to zero.

The Account Activity screen is now updated and shows both the loan payment and the Lender Service Fee.

The first payment for my second investment loan is due today. Just as wth the first loan, I see that the accrued interest is reset to $0.00. I do also see a line on the Loan Performance screen for the loan that shows the payment status as Scheduled, but I see that line for all of my loans. Based on my experience with the first loan payment, I believe that I will see this payment fully posted next Thursday morning.

I just noticed that the Loan Performance screen has a Credit Score Change field that alerts you if the borrowers credit score has changed. For one of my loans I see that their score is Up. Neat feature.

All in all, everything is proceeding smoothly.

Move over Bank of America, Wells Fargo, and Chase... us Lending Club investors are out to eat your lunch! Really.

-- Jack Krupansky

Tuesday, July 07, 2009

Waiting for initial payments on my Lending Club P2P loan investments

I have successfully completed my initial batch of person-to-person (P2P) loans ("notes") through Lending Club. I have invested 20% of the modest amount ($1,000) than I have earmarked for experimenting with this new investment vehicle. I have $25 investments in eight (8) different consumer loans, with a range of risk profiles. All loans are for a 3-year term.

I actually put in a total of 15 orders, but seven of them either did not get to 100% funding by the end of the 14-day funding period or failed to get verification of employment or income. These "failures" might seem alarming, but they really just show how picky and conservative Lending Club really is.

Unfortunately, the other 80% of my money is sitting at Lending Club idle and does not earn any interest. I could withdraw the money, but I intend to invest it by the end of the summer and it would not earn very much in a money market account anyway.

What's next?

The next step is to wait for the initial monthly payments to come in and see how that process works in practice, as opposed to theory.

My first monthly payment is for $0.83 on July 12, 2009, just 5 days from now. That 83 cents is my share of a $7,700 motorcycle loan that is rated C1 (somewhat risky) and has a rate of 12.53%. Lending Club takes about 0.7% of that, which should net me 11.83%. So far, Lending Club says I have 22 cents of accrued interest (updates every day). The 83 cents includes both accrued interest and repayment of principle. So, of that initial 83 cents, about 25 cents will be accrued interest and 58 cents repiad principle. As each month goes by I will get the same total payment (although it may vary by a penny due to fractional cents), but less interest and more repayment of principle. I am not positive that the 83 cents is actually my net or the gross before Lending Club takes their 0.7%. That is one of the details I will need to verify when the first payment comes in.

Payments are deducted automatically from the borrowers bank account via ACH debit. My share of the payment will accumulate in my Lending Club account, but will not accumulate interest. Lending Club has a reinvestment feature, but that requires that at least $25 be available in the account. I do have my remaining 80% of my initial capital, but I intend to wait until the end of the summer before deciding whether and how to invest deeper into Lending Club. The reinvestment feature searches for loans that meet parameters that you set and sends you an email alert.

My second note will make its first payment 5 days later, on July 17, 2009. The third is a day later, on July 18, 2009. I have two payments due on July 22, 2009, another due on July 23, 2009, another due on July 28, 2009, and the last due on August 9, 2009.

So, for now, all I have planned for the next two months is to sit, wait, and watch. And to blog about my experiences.

Oh, and I still need to research various questions, such as how the interest income gets reported for taxes.

I also want to spend some time sifting their a Google search of "Lending Club" and "sucks" to see if there are any legitimate gripes about Lending Club before I get in too deep.

-- Jack Krupansky

Made my Kiva micro-loan for the month of July

I made a new micro-loan through Kiva for the month of July. My intention is to make a new micro-loan every month, in large part from repayments for past micro-loans.

This one was for a married woman, with married children, in Managua, Nicaragua who farms. It is a 14-month micro-loan for a total of $625, of which I lent $25. The money is to be used to buy fertilizer and supplies. I did not realize at the time I made the loan, but replayment is at the end of the term (14 months, August 2010) rather than monthly. I'm not sure I want to put much money into this form of loan, although this one time is fine. Need to read all the details more closely next time.  The micro-loan was already disbursed to the micro-entrepreneur on June 18, 2009 by the local partner. Kiva is raising funds to essentially buy that loan from the local partner.

Here is my Kiva public lender page:

Note: This is all real and good, but these micro-loans do not net any interest to us micro-lenders. Kiva's fine print:

Lending to the working poor through Kiva involves risk of principal loss.
Kiva does not guarantee repayment nor do we offer a financial return on your loan.

Still, at least we know our money is really helping somebody better their lives in a visible way rather than put the money in a bank account or money market fund where who knows what it helps to pay for or what good it does and for only a few pennies of profit in our pockets.

-- Jack Krupansky