When we last saw our intrepid hero, he was minutes away from completing an investment in Lending Club. Unfortunately, he was stopped at the gate, unable to buy Notes (the name for the Lending Club investments, parts of loans to other people) directly from Lending Club as a result of living in the state of Pennsylvania. What will our intrepid hero do now?
Luckily, Lending Club offers a second method of acquiring Notes, purchasing them off the original investors on a secondary market at the Note Trading Platform. (I still haven’t heard a good reason why I can buy second-hand Notes, but not new Notes. But, that’s an issue for a different blog entry.) Since I still had the (free) $50 from the Lending Club promotion, I decided to check it out:
The trading desk did not look much different from the mutual fund sites I’ve used to seeing. You can go in, click on individual notes and see the status of the loan repayment. You can see the starting price for the Notes, the current selling prices, and the expected yield on the Note, if held to maturity. You can also see if the borrower’s credit score has changed during loan period or whether he/she/they are late on any payments.
In a way, it’s similar to how the stock market really works. After the initial public offering (akin here to the creation of Notes and purchase through the main Lending Club system), the price that a stock can be sold for is determined by an number of factors affecting the business and the broader economy. Good information leads to high prices, bad news drives prices downward.
With some browsing, I settled on a C1 grade note yielding 11.78% and an E1 note yielding 15.68%:
The combination of these two Notes should give me a decent yield, but not have too much risk of default. If these investments go well, I’ll probably be adding more money to my Lending Club accounts. If not, I’ll just have to write off the $50 as a learning experience (and take some solace in that it wasn’t actually my money).
I’ll have to give regular updates on the progress of my Notes, and when I’ve seen how this investment with Lending Club pans out, I’ll have to give it my final review.