With an investment of only $3,400… my peer lending notes at Lending Club are currently earning returns of 8.8% which, at the time of writing, equates to $25 of income every month.
One of the most important ways to keep your net annualized return (NAR) as high as possible it so watch your notes (loans) carefully and sell them on the note trading platform when they reach a level of risk you’re no longer comfortable with. Don’t worry… using the note trading platform is much simpler than it sounds and today I’ll show you how I do it.
Note trading platform basics
The note trading platform is nothing more than an electronic marketplace for the buying and selling of notes that represent consumer loans issued through Lending Club.
Sellers list notes in hopes of selling for a price of their choosing. Buyers browse available notes, review borrower payment history and credit score, and buy the notes of their choosing at the asking price. Buy orders received before 11am PST on a business day will settle same day, otherwise the transactions will settle the next business day.
Buyers receive interest payments whether they buy the note on the first day, last day, or any day in between the time the previous payment was made, so be sure to factor in accrued interest to your valuation of a perspective note. You can find the accrued interest since last payment on the Browse Notes page.
Fees for using the FOLIOfn platform equal 1% of the purchase price, charged to the seller of the note. There is no fee for buyers trades.
Tips for selling notes on the trading platform
You will have to determine your own criteria for trading existing notes, and everyone will do things a bit differently according to their own risk tolerance.
Here are a few strategies I use including a screencast of me selling a note and speaking more on the topic.
- I sell late notes. Any notes that have become late or are even in the grace period are watched very carefully and usually sold right away. I do this because I am not comfortable lending money to people who do not think it important to pay their debts on time.
- I watch credit scores. Watching credit score drops can help you head off a late payment before it reaches late status. Chances are, if a borrowers credit score drops significantly over a short period of time, they may be in financial trouble. I will sometimes sell the note before it has a chance to go late.
- I price notes accordingly. This is a bit of a gray area and will take a bit of practice, but do not charge more for a troubled note than you would be willing to pay, and at the same time be sure you’re not giving it away at a price that is too low. As you sell more notes you’ll get a better feel for pricing them correctly.
Enjoy this screencast of me discussing note trading and selling a note on the secondary market, and invest with Lending Club if interested.
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If you have any questions or comments don’t hesitate to leave them below.