A Dive Into The Lending Club Data

Find The Best Investment Strategy

We pre-computed the performance of more than 3,500 investment strategies and put together an interactive tool to help you explore the results. Play with it and test your investment intuitions against historical data.
Pipe: LendingClub Data |> Pandas |> Crossfilter.js, D3.js, DC.js

How The Lending Club Works

Online peer-to-peer lending platforms such as the LendingClub and Prosper have recently seen a great deal of growth.

Why and how to invest

Borrowers receive loans to refinance their credit cards, consolidate their debt or finance a home improvement at a better rate than their banks would provide. Lenders get a return on their investment that is typically much better than that gained from traditional Certificate of Deposit or Saving Accounts.

As an investor, you should build a portfolio by extending small loans to a large number of individuals in order to benefit from diversification.

Every month, you’ll collect interests and notional repayments from people you’ve lent to, and occasionally you’ll suffer losses from people who have defaulted on their payments. In typical cases, the losses will be less than the interest payments and you’ll be left with a good positive return on your investment.

Making the right investment decisions

When defining your investment strategy on the lending club platform you should essentially care about 4 things:

  • your expected return i.e. how much money you hope to get out of your investment
  • your risk i.e. the uncertainty around these returns
  • the maturity of your investment i.e. how long your money is committed for
  • the liquidity of your investment i.e. how long it will take to deploy your cash on the platform, and to liquidate your positions if needed

It's all a matter of people

The performance of your investment will depend on who you lend to and on the proportion of good payers and bad apples in your portfolio. The Lending Club helps you in making your selection by assigning a grade to each loan. The platform also allows you to filter which people you lend to according to some additional criteria based on location, credit and income data.

The most important criteria are:

  • the borrower's annual income
  • the purpose of the loan
  • the maturity of the loan
  • the presence of any recent delinquencies on the credit report
  • any public records
  • the employment length with the current employer
  • and finally, whether the borrower owns or rents his home
So let's see how these parameters can impact your investment.

Strategies I like and Strategies I don’t

The "second chance" strategy

People whose credit report shows a delinquency are heavily penalized by the Lending Club algorithm. A bit too much, it seems. That's why I like lending to them a lot. I limit myself to grades B,C,D and E. It gives me historical returns above 9%, with little risk as returns look stable through time. 413M worth of such loans have been issued on the platform in 2014, which represents about 11% of the total supply.

The "family guy" strategy

I also like lending to people who own their home, and whose credit report doesn't show any credit inquiry. They feel safe to me. Returns are also very consistent through time. Supply is good, 883M$ on the platform last year. For an extra ‘kick’ I remove the ‘A’ grade from the filter, selecting only grades B,C and D. It’s gets me up to 8.09% return.

The "safe haven" strategy

In general, I don’t much like ‘A’ graded loans. Yes, they're safe, but they don't yield high returns. Their average return is 4.3%, whereas the average of the market is 6.68%. Therefore, although this is probably the only category that did not suffer excessively during the economic crisis, I find that the premium to pay for a grade 'A' is too high.

Seeking The Pearl

Click the pie charts below to select a filter, compare strategies, or fine-tune the one you like

Watch for your average return (expected return), consistency of returns through time (risk), while making sure there is enough supply (liquidity) on the platform to deploy your strategy.

Strategy Returns Through Time reset all
Strategy Average Return
Loan Grade
Corresponding Supply (2014)
Recent Delinquencies
Employment Length
Home Ownership
Recent Credit Inquiries
Annual Income
Public Records
Loan Purpose
Loan Term

Methodology And Other Technical Considerations

Goal

The goal is to provide a simple interactive tool to explore and compare the historical performances of different investment strategies. When I first started to invest on the Lending Club platform, I was a bit frustrated by the lack of analytics that would help me make good investment decisions. This is a first attempt to address the problem.

Current Methodology

Most investors deploy and re-invest their money continuously on the platform and therefore many own a portfolio with loans of different ‘vintages’. The ROI are computed to reflect this, as they are returns averaged across vintages.

Future improvements

Currently, when there are not enough loans for a given vintage in a given filter, the return analysis may not be statistically significant and may yield outliers. You may therefore find a couple of filters showing abnormal data points. This should be addressed by further normalizing the data.

Please also note than due to the low issuance volume in the early days of the platform, the returns computed for the pre-2010 period are much less reliable than the post-2010 returns.

For any questions, feel free to contact me at [email protected]

Clement Miglietti

I am a co-founder at The Guarantors. I am passionate about data-driven decision making. I am always happy to talk so don't hesitate to contact me on LinkedIn.