Monday, October 24, 2011

Loan Type vs. Returns

One of the things that struck me about Ken's blog post that I referenced yesterday when I looked at Inquiries vs. Returns was that some loan types performed so much more poorly than others. I know when I first read it I thought it seemed unlikely. Indeed, even now my investing criteria don't filter by any particular loan type.

In his post, he saw that credit card loans had the highest ROI, just over 5%. Business loans had a low ROI just under -3% and education loans had the worst return on investment at under -4%.

I looked at Lending Club loans issued from 2008 through today to see if this trend continued or was just random noise and found these results:

It's worth noting that there are no new Educational Loans for 2011. But, indeed, year over year we see educational (blue) and business (red) loans performing more poorly than the average loan (grey) and Credit Card loans performing better than average.

At the moment it looks like the ROI is converging, but this could be due to the recency of many 2011 loans. It will be interesting to see a similar graph a year from now and compare.

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