In 2012, I started to invest in Peer to Peer LendingClub loans. I invest in $25 increments which is the minimum to avoid too much exposure to each loan. Back when I started investing 3yr loans were yielding around 9-12% based on my criteria which I have listed below:
- Loan purpose only refinances of credit card debt and debt consolidation
- At least 60 months since last delinquence
- 2yrs minimum length of employment
- Zero outstanding collections
- Max 40% revolving credit utilization
- Zero delinquencies in the last 2 yrs
- Home ownership status either Own or Mortgage (exclude renters and other)
- Revolving credit balance less than 50%
Today I searched my criteria and one loan is available at 6.67% yield. At this point I believe the credit quality of these personal loans has gotten worse and investors are not being compensated enough for the risks they are taking. I have been selling off my portfolio via the LendingClub trading account and have managed to decrease it by over 50% over the last 12 months. It certainly isn’t a liquid market and these investments take some time to sell (in order to breakeven on the commission you have to sell it at a 1% premium).
I also believe this product has not been recession tested and many economists believe the next economic downturn is about 12-18 months away at which point I think these borrowers might default in high numbers. I think given the risk you are taking with these personal loans there are other outlets for better yield with different and new products like Kickfurther.com, Roofstock.com, and even personal stock investing.