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What TERM loan do you invest in?

Started by Peter, July 16, 2014, 11:00:00 PM

Previous topic - Next topic

brother7

When I first started investing, it didn't matter.
After more research, I learned that 60-month loans have a greater chance of default so I started to favor 36-month loans.
Now, all of my new note purchases are 36-month only.


Emmanuel

It's not so much that the default rate is higher, since rates can compensate for that, but that the defaulting loans stop paying comparatively sooner..

The graphs below show the probabilities of defaulting loans to stop paying, for each month until maturity. Highest risk is at the 11th month for 36-months loans and 13th month for 60 months loans, so respectively at around 1/3 of maturity for 36-months loans but only 1/5th for 60-months loans. Therefore if a 36-months and a 60-months loss both default, the loss will be greater on the second one.

Fred

Below are charts from latest LC 10-Q:
http://www.sec.gov/Archives/edgar/data/1409970/000119312514201360/d706350d10q.htm" class="bbc_link" target="_blank">http://www.sec.gov/Archives/edgar/data/1409970/000119312514201360/d706350d10q.htm

https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fwww.sec.gov%2FArchives%2Fedgar%2Fdata%2F1409970%2F000119312514201360%2Fg706350p35.jpg&hash=932476cf6d3a2cb0df4d3175af3c0230" alt="" class="bbc_img" />

https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fwww.sec.gov%2FArchives%2Fedgar%2Fdata%2F1409970%2F000119312514201360%2Fg706350p42.jpg&hash=abd7a285fcf4cdadfb10f420429655c7" alt="" class="bbc_img" />

Peter

I am about the same ratio as Rawraw. I prefer 36-month but we need to keep in mind that the first 60-month loans won't reach maturity until early next year. So, it will be a while before we will be able to compare apples with apples.
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

lascott

I'm current in 36 mo @ 87.6% and 60 mo @ 12.4% per https://www.lendingclub.com/account/lenderAccountDetail.action" class="bbc_link" target="_blank">https://www.lendingclub.com/account/lenderAccountDetail.action pie chart using the TERM option.

I'm mainly done P2P-Picks for the 36ers and LendingRobot for the 60ers.

A couple older articles about this:
Title: Lending Club Loan Length and Default Rate - Posted by Anil Gupta on June 21, 2012
http://andirog.blogspot.com/2012/06/lending-club-loan-length-and-default.html?_sm_au_=iVV0FRJfT30QRPjr" class="bbc_link" target="_blank">http://andirog.blogspot.com/2012/06/lending-club-loan-length-and-default.html?_sm_au_=iVV0FRJfT30QRPjr
Title: Lending Club Loan Length: Best 60 month spread with B4 Grade Loan - Posted by Anil Gupta on June 25, 2012
http://andirog.blogspot.com/2012/06/lending-club-loan-length-best-60-month.html" class="bbc_link" target="_blank">http://andirog.blogspot.com/2012/06/lending-club-loan-length-best-60-month.html
Title: Lending Club Loan Length - Credit Grades and Default - Posted by Anil Gupta on June 28, 2012
http://andirog.blogspot.com/2012/06/lending-club-loan-length-credit-grades.html" class="bbc_link" target="_blank">http://andirog.blogspot.com/2012/06/lending-club-loan-length-credit-grades.html


Title: Balancing Your Portfolio by Loan Term – 36/60 Month - Posted by Nickel Steamroller on June 7, 2012
http://www.nickelsteamroller.com/blog/2012/06/balancing-your-portfolio-by-loan-term-3660-month/" class="bbc_link" target="_blank">http://www.nickelsteamroller.com/blog/2012/06/balancing-your-portfolio-by-loan-term-3660-month/

LendingClub page, https://www.lendingclub.com/public/60-month-notes.action" class="bbc_link" target="_blank">https://www.lendingclub.com/public/60-month-notes.action , states 60s are good because of higher interest and lower fees.
https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FKLGEfC1.png&hash=37da1d9f19c9c92a900c33f7490e1d9e" alt="" class="bbc_img" />

SBryantMS

I am 86% (36 month) and 14% (60 month) notes.

I stopped buying 60 month notes as my loss rates were triple my 36 month note per Interest Radar. 

My early defaults in the 60 month notes increased my principal loss to unacceptable levels.

I don't believe that the higher interest rate on 60 month notes properly compensates for the additional principal loss. 

I ONLY buy 36 month notes now.

AnilG

My current portfolio split is 54% 36 month (age 15.12  months) and 46% 60 month (age 5.31 months) loans. Earlier this year, I switched to buying 60 month loans or to put more appropriately ignoring loan term in my loan selection.

alimoyni

I very recently started to buy notes on Folio that have < 15 months remaining on the loan term and they have had perfect loan payments during the loan.    This has given me a mixture of 36 and 60 month loans and typically in the B/C range. 


TravelingPennies

I did some research earlier this year for an institutional client. I don't believe LC has made any adjustments between 36 and 60 month loans. The high interest rate loan pool is primarily made of 60 month loans so it is very difficult to avoid them if you want to play in high interest rate loan sandbox.

https://forum.lendacademy.com/index.php?topic=2473.msg21214#msg88888888Quote"> from: lascott on July 19, 2014, 12:30:49 PM

turing

I am 60% 60 month and 40% 36 month.

The model I am working on shows that the higher interest rate you earn with 60 month notes more than compensates for any risk.

rockinray

Currently, I am 90% 36 and 10% 60.

I am considering an 80/20 split to see how the allocation will perform.

Ray


TravelingPennies


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