I’m sure many of you are justifiably skeptical and must think that the LendStats’ ROI calculations are incorrect or at the very least generous or maybe you think that I’ve just been lucky as a lender. I will attempt to prove all of those cases wrong by taking a deeper look into my numbers. Using LendStats.com I can track my own (or anyone else’s) returns and see a basic breakdown & analysis of my portfolio, so let’s see what LendStats.com has to say. By using this query I can see what my loan performance has been on loans made starting in 2009. This is the result:

Loan Performance Summary for lender lendstats_com: .

You can see here LendStats.com calculates a rate of return of 20.94% for the user lendstats_com, which is me. So let’s do a back of the envelope calculation to see if the LendStats calculation is legit. We can see the average interest rate on my notes is 25.93%, the average loan age is 6.2 months, there are 5 defaults for $937, there are 3 notes for $303 that are 31-120 days late and 13 notes for $2009 which are 1-14 days late. For the sake of simplicity let’s assume that all loans more that 30 days late will default. That gives us $1240 in defaults. Lendstats.com estimates that 30% of 1-14 day late loans will default which would give us an additional $603 in estimated defaults. So we add that to the $1240 and we get $1843 in estimated defaults on $167,110 lent out. That’s a 1.1% default rate, not bad. Unfortunately though, this 1.1% is misleading. We need to first subtract the $40503 in newly issued loans from the total lent because the newly issued loans have not yet been billed and they have had absolutely no effect on returns. That leaves us with $126,607 in billed notes. We also need to consider the effect of early payback and the decreasing principle of the active loans. So to keep things simple for this back of the envelope calculation, let’s just look at the current balance of all active billed loans which is $95,213. This gives us an estimated loss rate of about 2% ($1843/$95,213). Now, considering the estimated loss of 2% on my loans which are on average 6 month old, we can multiply the 2% loss by 2 to get a yearly loss rate of 4%. Since my average interest rate is 25.93% and my estimated annual loss rate is 4% that leaves me with a net 21.93% annual gain. Then we also subtract the 1% in fees that Prosper takes and we are left with 20.93%, Wow, that’s almost exactly what LendStats calculates, not bad for a back of the envelope calculation!

Now those who think Lendstats is being generous with its calculation, let’s remember that in this back of the envelope calculation we made 2 big assumptions that will always result in an underestimation of calculated returns. Those assumptions were:

#1: all loans 31+ days late will default. Although most do default, not all of them do.

#2: the average balance we used was not the average, but the current balance of active loans which is much lower than the average balance.

These two assumptions should lead us to calculate a higher rate of loss than the actual rate of loss. Since our back of the envelope return calculation matched the LendStats calculation, this shows that LendStats.com is probably not overestimating my rate of return and in fact could be underestimating it.

Now for those of you who think my returns are the result of luck, look at the number of loans. There are 660 billed loans. If there were only 50 loans, then yes, luck would be a strong possibility, but not with 660. To get that kind of return on that many loans an effective lending strategy is needed, luck would not suffice.

We can also do one last check to see how my returns compare to other similar lenders. If my returns really are so great, then I should be one of the top lenders. As of today I am the #4 lender by ROI (just 0.4% behind #1) out of 595 lenders that have at least 300 billed loans on the post 2009 Prosper platform. We can see that query here. From this list we can conclude that I am one of the top performing lenders on the Prosper platform.

So there you have it. I am getting a legit 20%+ on my loans made at Prosper post-relaunch. However, even after this validation of the LendStats.com calculation, I actually believe I will not achieve 20%. Through experience I’ve learned that returns have a tendency to slowly head downward till about the 18 month mark and I have 12 months to go till then. Nevertheless, I am still aiming for 20% and I’m sure if I don’t make 20% I will be close and in any case I’m sure I will be happy with the returns that I get.

Now for the question that everyone wants to know: How in the world am I getting 20% returns? Well, just take a good look at LendStats.com and you might just find out. Hint, start out here play around a bit and be sure to use the ‘sample filters’, that’s what I do.

Newbies beware!!!!! I recommend that newbies start off with much more modest goals, like 5% and sticking to a portfolio of 90% AA,A and B loans. Many newbies were burned in the beginning going after high returns and although the default risks are much lower now than they were 3 years ago the risks are still there. So start modest and remember patience is your 2nd biggest ally, the #1 being LendStats.com of course.

***Please note that these calculations do not reflect any trades made on the trading platform. That data is not yet available from Prosper. The analysis presented here and at LendStats.com only looks at loans funded on the Prosper platform as if no buying or selling activity ever occurred on the secondary market.

In Oct ’08 Prosper shutdown in order to register with the SEC. Everyone had to stop lending, but at the same time LendingClub had fully reopened so I switched to LendingClub and continued lending. Through the first year my returns were good with LendingClub, but at the same time my returns with Prosper were looking worse and worse and it became clear that my returns may actually turn negative. While reflecting on why my returns were not good with Prosper, I realized one of the biggest negative factors was that I had relied too much on the ROI’s calculated at lendingstats and ericscc. The ROI’s in these sites were much higher than the actual ROI’s, especially for younger loan sets (this really contributed to speculation with Prosper i.e. many lender’s bid on loans solely because another lender with a high ROI bid on it). Also at this time, LendingClub also started advertising very high estimates of ROI. All of these high ROI estimates didn’t seem right, so I finally decided to take the matter into my own hands and calculate ROI’s that seemed accurate to me. In Oct ’09 I started analyzing LendingClub’s data. Looking at their data taught me very valuable lending lessons that I thought everyone should know, so I created a freebie website to share what I learned. That website is still there http://lcstats.99k.org if you want to take a look. It took a while, but eventually I figured out how to open the massive prosper data files and did an analysis of Prosper’s loans. I created a site for that too (that site is also still there www.prosperstats.99k.org). I also created a third site that united those two sites www.lendstats.99k.org. Finally in March of 2010 I had enough of the freebie stuff and thought that its time to get a real domain and I bought www.lendstats.com.

In it’s short existence LendStats.com has already evolved a lot and is continuing to evolve as I learn more about programming. I’ve recently moved all calculations over to the server, added customizable loan filters and now have all data updating automatically everyday. These are all things that I thought would have been impossible for me to do a year ago, but I did it! (with a little help though ) The future of P2P lending is looking brighter and brighter. Prosper’s returns since relaunch in July 2009 have been outstanding and LendingClub’s returns have been good all along and continue to improve. Now LendingClub is even talking about making a profit next year already. The future looks great. As the future of P2P lending looks better and better you can expect LendStats.com to only get better and better also. So keep your eyes peeled because this is only the beginning!

kenL (aka lendstats_com) 2/16/11

The latest Prosper data continues to impress as well. Although overall returns are still in the gutter at (-4.74%) the returns since relaunch in 2009 have been excellent at 8.86%. Believe it or not since relaunch Prosper’s returns have been better than LendingClub’s over the same time frame, but the loans are still young and things can change, especially since Prosper is a higher risk-higher reward model. The biggest problem with Prosper right now is how far they are from profitablilty. Many believe that $25 million in loans per month must be generated for Prosper or LendingClub to cover their costs. LendingClub is almost half-way there at $12 million loans generated in September but Prosper has been languishing around $2 million a month for the last 11 months. Prosper also has much less money in the bank and will need another round of funding next spring or summer. Any lender should keep an eye on per month or per week loan originations to see how the companies are growing. I do expect Prosper to start growing soon. With the aid of promotions and the proven returns of the last year I expect October to be a big month of growth for Prosper. I have been investing again with Prosper and so far my returns have been nearly perfect since relaunch with only 1 loan that is less than 15 days late out of 110 billed loans. It will be interesting to see what kind of growth Prosper has in the next months. If it’s big growth I think we can expect that next round of funding to go through without any problems and Prosper may be here to stay. LendingClub, on the other hand is already in great shape. They have enough funds for the next couple of years and could possibly reach profitability without even needing another round of funding. LendingClub is definitely the place to invest if you are looking for lower-risk lending, but with Prosper much higher returns are possible.

1. Credit Grade	This chart shows a decline in returns as the credit grade decreases with A loans yielding over 5% returns and F & G grade loans yielding negative returns. The returns calculated by LendStats.com aren’t as high as the returns advertised by LendingClub. However, LendingClub’s returns are still good and the potential for better returns is great, especially if you learn the lessons that LendStats.com has to offer.
2. Inquiries in the last 6 months	My jaw dropped when I first saw this data a year ago. As you can see, the higher the inquiries, the lower the returns. The correlation is amazing. In my opinion this is the single most important criteria to consider when making a loan.
3.Loan Type	This chart shows how loan type affects returns. Only educational and business loans yield significantly negative returns. Credit card and debt consolidation loans yield the best returns. Vacation, house, and renewable energy loans were omitted from this chart because of low sample size, however, their analyses can still be found at LendStats.com.

Credit grade, inquiries in the last 6 months, and loan type are just three of the many criteria analyzed at LendStats.com. You can also find suggested loan filters and corresponding listings that match the filter.

On the Prosper side of LendStats.com all of the same analysis can be found. Also, a searchable prosper lender performance database can be found on the homepage.

Check back soon for the latest LendStats.com updates and the latest P2P lending statistics.