Monday, September 17, 2012

Mrs. RT: From Lending Club Night to PeerCube Night

As we’ve been using PeerCube to select loans, our Lending Club “date” night has ended. Now Mr. RT and I can review loans during our own free time, exchange comments virtually and invest loans without discussing about each loan together. Ahhhh, I miss those Lending Club nights…

The first checkpoint: Filter Loans

Now this is how I select loans using PeerCube. I can create a loan filter, save it and use it again and again to find “quality” loans using my own filter. The loan parameters I care about first and most are the following:
  • Interest Rate (exclude low interest),
  • Loan Grade (exclude both too good and too bad ones),
  • Debt to Income Ratio,
  • Delinquencies (no delinquency),
  • Public Record (no public record),
  • Revolving Line Utilization,
  • Inquiries, and
  • FICO Range (exclude both too good and too bad ones).
I set these loan parameters as I like. I don’t differentiate borrower’s location, home ownership, loan purpose, and length of employment at this stage. I select all options for these parameters.

The second checkpoint: Filtered Results

By looking at the filtered results, I tend to notice and avoid loans for business purpose and with short employment length. But my filter is pretty selective already and usually only a handful of quality loans are selected. So, I review details of loan one by one anyway.
  • Loan purpose – I’m hesitant to invest on business purpose loan or self-employed borrowers. But Mr. RT would rather invest on such loans.
  • Open Credit Lines – I avoid the borrower with too many open credit lines.
  • Earliest Credit Line – Based on this information, I can sometimes see the link between borrower’s age, loan purpose and financial situation.
  • Balance among Loan Amount, Monthly Income, Revolving Credit Balance, Debt to Income Ratio – By looking at those numbers, I try to determine if a borrower is capable of paying back a loan on time. Because living cost is so varied from region to region, I wish I knew average income based on the place where a borrower lives. That would be a useful information when selecting a loan. Mr. RT, can you add this feature to PeerCube?

The third checkpoint: Link to Lending Club

Once a loan has passed the second checkpoint, I check the detailed loan information found on Lending Club site by clicking Invest button on PeerCube. I’m interested in reviewing the following information:
  • Monthly Payment – This is, again, a good input to see borrower’s capability of pay back.
  • Current Employer – I tend to trust borrowers working for established company, schools, hospitals, state, and government.
  • Questions and Answers.

Next Step

Finally, I make decision on the loan and go back to PeerCube, rate the loan and leave my comment.

I wait for Mr. RT to review the loans I picked. On Loan Review page, he could review loans with highest peer rating or loans with most peer opinions. Currently he finds my rated loans easily. In the future, when PeerCube becomes popular (!?), he may not be able to find my rated loans. Mr. RT, how about a feature that a user can follow a particular user’s ratings and opinions?

After developing PeerCube, our Lending Club night has actually evolved into PeerCube night. Instead of discussing about loans, we discuss about bugs and new feature of PeerCube that can help collaborate further and speed up loan selection process.

AG's Rant

Last week, Peter wrote a post on how interest is calculated on P2P loans. Though the article is good for beginner P2P lenders, the best part of article is the discussion in the comment about how pre-payment of a loan can give lenders negative return after Lending Club's 1% service fee. Mrs RT already wrote about her displeasure when one of our loan was prepaid so early that we didn't get any return on that note. Being laid back, I chalked it up to cost of doing business.

I reluctantly agree with the argument that there should be a pre-payment penalty for borrowers though it should be very nominal. But I also feel like that P2P lenders are starting to act like 'blood-sucking corporations and financial institutions focusing on maximizing ROI.' What is the difference between them and us? I believe unlike corporations, we still have a soul and compassion for human beings.

I am big fan of Derek Sivers and such discussions remind me of this  animation.




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2 comments:

  1. Peer Cube seems nice. It needs to be updated more frequently. I have put my filters in, and usually my loans are already fully funded. But I know it will get better.

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    Replies
    1. Jesse,

      Thanks for the comment and request for frequent update. PeerCube consciously decided not to use data that requires authentication at Lending Club site which appears to be updated more frequently. We figured LC may have some reasons to keep certain information private behind authentication wall. But based on your and other users feedback, we are planning to request LC for permission to use data available behind authentication wall.

      Thanks.

      Anil

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