In a few short weeks I’ve had a second loan go bad with Lending Club. The first one was to be expected, I dabbled in lending to lower quality borrowers and paid the price. But my little E rated borrower is trying, they made a partial payment last month and a double payment this month to bring the loan current. I have a feeling they will continue to struggle, though I appreciate the effort. The latest loan to go bad is more of a puzzle.
The borrower earned a B rating from Lending Club, meaning they had good credit and no delinquencies. They borrowed $20,000 on August 25th and made the first payment a month later. After that, they fell off the face of the earth.
Lending Club automates payments, they withdraw the funds directly from the borrower’s bank account each month rather than depend on borrowers to mail in their payment on time. The automatic payment failed, meaning either the account had insufficient funds or had been closed. LC has attempted to contact the borrower several times via email and phone without luck. According to the notes in the file, the borrower’s phone number has been disconnected. Since they have been unable to speak with the borrower, the account has already been turned over to a collections agency. At best I will see a few of my pennies returned, most likely the loan is a total loss.
I can only speculate what happened but part of me wonders if this was outright fraud. The borrower made no real effort to repay the loan, it seems like they skipped town the minute they got the money. $20,000 is a lot of cash to be handed at once. The other delinquent borrower is obviously having difficulty, but they haven’t skipped out on paying. This person it seems never intended to repay the money.
I will continue to invest with Lending Club, but will be scaling back future investments. With something as risky as peer to peer lending, never invest more than you feel comfortable losing. Instead I will be looking for a safer home for the money I intended to lend. I work hard for my money, I don’t enjoy being defrauded by dishonest people.
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11 comments:
Can you write off the potential loss on your income tax like a business loss?
We don't have this type lending system in Canada.
Those jerks absolutely skipped town with the money. Perhaps they also stole someone's identity to get the B rating?
it is sad. I hope you have better luck with future borrowers
This is the unfortunate reality of the lending business. Granted, you admitted that you took a chance lending money to low quality borrowers, but everyone has to realize that this can happen even when you only stick to good quality borrowers. Now don't get me wrong, I'm not happy that this happened to you. I'm just saying that it's the reality of this type of business
I might have mentioned I was in the Auto sales business 25 years. I saw hundreds of loans go bad. I would never lend money. The risk is too high. get out of it if you can. My opinion. Good luck!
John DeFlumeri Jr
This is my big fear with the peer-to-peer lending. I invested the $25 they gave me for free to try it out, but I think I'm way to conservative and distrustful to ever make it a larger part of my portfolio!
Oh sheesh. It does sound like fraud. And I agree with the other commenter that this may have been identify theft as well. I can only hope that karma will catch up to these people.
A better option for peer to peer lending is 40billion.com. Small businesses and startup entrepreneurs raise money through personal connections online (a.k.a person to person, peer to peer, social lending). This elevates access to funding, increases transparency, reduces costs, and lowers risk.
Entrepreneurs connect with their social networks (friends, family, friends of family, community members, colleagues, alumni and others) to raise up to $99,000 in funding by requesting loans and gift contributions. Funders can get product discounts and freebies, as well as the ability to track how the funding is spent.
Visit http://www.40billion.com for more info about people funding businesses.
Like paranoidasteroid, I invested the free money, but I'm still not comfortable with setting my own money loose in the system yet. I've got enough loans floating out there that my nerves can't take much more risk.
That's awful. I don't think I would ever feel comfortable investing that much in a P2P lending scheme - so sorry to hear about this! Do you know what they were borrowing for?
I'm not familiar with Lending Club but in the UK we have a similar service called Zopa. They split loans up so that lenders would never be liable for the whole amount, do Lending Club work in the same way as if they don't then the risk on an individual lender is way too high. I understand Zopa are looking to open in the US soon.
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