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Forget the bank: The future is peer-to-peer lending
By: Nicholas Lemieux
School of Business
Lending Problems
Following the 2007-2008 financial
crisis large banks were imposed with
capital regulations that forced them
have stricter loan requirements.
Many of the “regular” citizens of the
world were squeezed out of
receiving once traditional loans.
With the gap between banks and
borrowers closing, LendingClub
emerged as a relatively young
concept of lending. Known as peerto-peer lending it allows borrowers
to receive loans from another
individual who stakes the money
through an online platform. This
provides an opportunity for
investors to receive a return higher
than traditional investment vehicles.
My goal was to investigate the peerto-peer lending environment from
the investors side by taking a $500
personal investment and attempting
to garner a 12% return.
Filtering Notes
•Investing in $25 “notes” or
partial shares of a loan
•Focused on debt
reconsolidation and credit
card refinancing
•Filter available loans via
strict criteria
•Traditional filter:
• Open Credit Line: 530
• Delinquencies: 0
• Home Ownership:
Mortgage
• Inquires In last 6 mn:
0
• Public Records: 0
• Loan Term: 36-months
• Max Loan Amount:
$30,000
• Monthly Income:
$5,000-$20,000
• Credit Score: 675+
Loan Grades
Standard Returns
Loan Market
Portfolio View
Account Summary
Loan Description
Investing Language:
FICO Score: A persons credit score calculated with
software from Fair Isaac Corporation.
Peer-to-Peer Lending: Practice of lending money to
individuals through online trading platforms.
Diversification: The process of allocating capital in a
means to reduce exposure or risk.
Refinancing: Replacement of a debt obligation with
another under different, typically better terms.
Interest Rate: Proportion of loan charged as interest to a
borrower, often annualized percentage.
Results & Profits
•Purchased 20 different $25
“notes” ranging from grades BE
•Currently have 21 note
portfolio through reinvestment
•One note paid in full, zero
defaults
•Garnered 16.50% return
•$13.83 earned as interest
•Account valued at $513.44
•Weighted average of return on
current portfolio: 16.28%
•Switched investment strategy
from lower risk B grades to
incorporate higher risk /
reward D and G grade
•With an a goal of achieving a
12% return on my portfolio, I
have achieved this to date.
However, as the length of
these loans get longer, defaults
are expected
•Intend to continue manually
investing with this strategy
while adding more cash to the
account to diversify further
•Goal to continually see these
returns while diversifying with
about 100 notes
Literature Cited:
www.Lendingclub.com
Acknowledgements
A special thank you to Professor
Michael Ice, my sponsor, who
guided me through this process
while providing invaluable investing
advice through his own personal
financial journey.