Sunday, July 17, 2011

A Club for Lending (Part 7): Advanced Strategery 4

This will be my final post on Lending Club filters (except for the summary immediately following this)!  As in all the other posts, items in bold and red are filters that the Lending Club website itself cannot perform, but can be performed with downloaded loan data from the website.

13.  Remove loans not yet approved by Lending Club

Interestingly enough, you can invest in loans that are not yet approved by the Lending Club credit department.  If these loans end up not being approved by Lending Club, the money that you have invested is returned to your account.  I don’t want to bother with this, so I just avoid loans that have yet to be approved.

14.  Remove loans of borrowers with income less than $30,000

The vast majority of Lending Club loans are for over $6,000.  If you make $30,000 and take out a Lending Club loan, your debt-to-income (explained in one of my previous posts) is 20% just from your Lending Club loan.  I use this income filter in addition to my debt-to-income filter to be consistent.

But that’s not to say I just want ultra-high income borrowers.  Basically, I just want to understand the borrower’s financial situation.  If I see a borrower that makes $60,000 and has $10,000 in credit card debt at 23% interest, it makes sense to me if he wants to take out a Lending Club loan for $10,000 at 15% interest.  He’ll come out ahead of the game with the Lending Club loan and I can understand that.

On the other hand, I recently saw a borrower asking for a $25,000 loan to build a pool.  The borrower had a verified income of more than $25,000 per month (more than $300,000 per year).  This situation I didn’t get.  Couldn’t this borrower just tighten his belt for a few months to pay for the pool with cash?  Why does he want to take out a 5-year loan if he has this type of cash flow?  It didn’t add up to me so I didn’t fund the loan.

15.  Remove loans already invested in

Pretty simple filter here: I invest in loans that pass all my tests, but I don’t want to double down on the same loans again and again.  So I remove loans from my search that I’ve already invested in.

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