Take on debt and put it in Lending Club?

[toben88]

Recently I needed to buy a truck and could have paid cash. Instead I got a 6 year loan at 2.99% and put the cash into lending club.

I have been doing this a few years now and appear to have a final return of 8.5% while investing in C, D, and E loans with my own secret investing strategies.

Is anyone else racking up debt on other assets to put money into Lending Club? Anyone think this is a bad idea?

[AnilG]

There was detailed discussion about it few years ago. It is a bad strategy as there is not enough spread between borrowing rate and return to safely make such a bet. If you were borrowing at sub 1%, it may be good to do but definitely not at 2.99%. You should also realize that 2.99% borrowing is backed by a collateral but return is not guaranteed.

Your 8.5% return is phantom, it is only true as long as you continue to reinvest the repayments. Once you decide to stop buying new loans and start liquidating your account, your return will start declining as interest amount in repayments received will decline and may not be enough to meet the losses resulting from defaults. See RobL's thread about monthly interest to loss and net monthly proceeds that he regularly updates. It is very informative. Ask people who have liquidated their accounts or stopped buying loans about what their final return were. What they put in and what they got out in the end.

https://forum.lendacademy.com/index.php?topic=4859.msg43337#msg88888888Quote"> from: toben88 on April 25, 2018, 02:51:22 PM

[bobeubanks]

https://forum.lendacademy.com/index.php?topic=4859.msg43343#msg88888888Quote"> from: AnilG on April 26, 2018, 04:33:46 AM

[TravelingPennies]

Performance of your portfolio is a good indication of why borrowing at 2.99% to lend is a bad idea.

https://forum.lendacademy.com/index.php?topic=4859.msg43346#msg88888888Quote"> from: bobeubanks on April 26, 2018, 11:15:22 PM

[TravelingPennies]

Don't invest borrowed money in LC.  I do same in much bigger scale (200k+). There are other platforms with lower risk and higher return.

[MarinBB]

https://forum.lendacademy.com/index.php?topic=4859.msg43359#msg88888888Quote"> from: hashiryu on April 29, 2018, 01:32:49 AM

[Edward Reid]

Yeah, borrowing to invest is almost always a bad idea unless you have a guaranteed return, and I mean like FDIC insured. IOW, at least as certain as the debt you owe.

https://forum.lendacademy.com/index.php?topic=4859.msg43343#msg88888888Quote"> from: AnilG on April 26, 2018, 04:33:46 AM

[rawraw]

I don't think borrowing to invest is always bad. I think there are benefits to buying the stock market with leverage. But generally not a good idea to borrow money to invest in higher risk bonds

[Reginald]

To reduce risk, I would *only* borrow money from lenders who dont care whether or not you pay them back. Like, uhmm, for example Lending Club.  https://forum.lendacademy.com/Smileys/default/grin.gif" alt=";D" title="Grin" class="smiley" />

[Harvey]

They will chase you if you default on the debt. Not a good idea. Diversify your investments very carefully.
There is one platform where you can get to know the borrower personally: http://www.beelend.com" class="bbc_link" target="_blank">www.beelend.com.