Lending Club PRIME Review – November 2011

Lending Club PRIME account review

The last time we reviewed my wife’s Lending Club PRIME account, back in August, we were at an NAR of 9.73%. There were 22 notes that were more than 30 days late and of those 15 have now defaulted. This brings the defaults/charged off number up to 30 which explains the 1% drop in NAR. Here is a link to my original Lending Club PRIME review if you want to find out how PRIME accounts work.

I took the above screenshot last night. For those following along closely, the account total has grown in size around $690 since the last review. There are plenty of late loans so the NAR will likely continue to fall. My real world return is pretty easy to calculate. I have not added to or subtracted from this account at all in the past year. My statement balance at October 31, 2010 was $55,944.65 and at October 31, 2011 it was $60,170.03. This equates to a return of 7.55%.

I am Taking This Account off PRIME

I think a return of 7.55% is decent but I am confident I can do better than that. So, I have decided to take this account off PRIME and manage it myself going forward. I like the Lending Club PRIME service with the hands-off approach but I also want to get the best returns possible.

Having said that, I think it is useful for readers to see the returns of a PRIME account so I am going to leave my wife’s other IRA as is. These two accounts were started as PRIME accounts at exactly the same time (the only difference is one is a Traditional IRA and the other is a Roth IRA) and had the exact same investment strategy initially. Both accounts even invested in many of the same loans.

In April of this year, I decided this was not the best strategy so I switched the Roth IRA, that you see in the screen shot below, to only invest in 60-month notes (the Traditional IRA is invested in only 36 month notes). After reinvesting for a bit over six months this account is now at 72% 36-month notes and 28% 60-month notes.

Lending Club PRIME Roth IRA account

The NAR trajectory of this account has followed the exact same path as my other PRIME account. It started at around 12% and has fallen to a low of 8.33% achieved last month. The real world return on this account over the past 12 months is also very similar – it is 7.72%.

As I change strategies with my other IRA account it will be interesting to see if I can create some separation between the two accounts. I certainly hope my note picking strategies will outperform the blanket investment strategy of a PRIME account.

Lending Club Changes the Minimum Investment for PRIME

Last month Lending Club changed their policy on the minimum investment needed to open a PRIME account. It was $5,000 and now it is $25,000. The reason for the change, as it was relayed to me, is that they want these accounts to be fully diversified. And they felt that $5,000 just wasn’t allowing new investors to achieve the desired diversification.

The average PRIME account is over $100,000 so for many people this won’t make any difference. But new investors wanting a hands-off approach now need to commit $25,000. If you already had a PRIME account you are grandfathered in (as the account above has been) and can maintain a lower balance.

Lending Club certainly doesn’t appear to be losing much business because of this change – they are having another excellent month.

  • Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.