Battle of the Titans

Lendingstats ROI vs. Eric's Credit Community ROI

Just the other day my average loan age according to LendingStats (LS) and Eric's finally reached the 1 year mark. I thought it would be a great time to compare ROI calculations for each of the sites to eliminate any effects from annualizing calculations. I missed my 1 year mark on Eric's by a couple of days, but close enough...)

If you're familiar with the two sites, then you know that the ROI calculations almost always vary a little between the two since their approaches to the calculation are different.

The biggest difference that lenders first notice is that LS takes the defaults that your portfolio has seen to date, and based on the average loan age annualizes the figure. For example (if I understand correctly), if your average loan age is 1/3 of a year (about 122 days), and 2% of your portfolio is already late or defaulted, LS will project that out for the year, meaning it expects that 2% x 3 , or 6% of your loans will go late or default in a one year period.

Many lenders are often surprised by LS's ROI calculation, as it will often show a very low or negative ROI on young portfolios with late loans. But the argument makes sense. If a newer lender is experiencing late loans early in their lending experience, they will most likely experience even more late loans down the road since, as Fred93 says, "loans go late over time". And as a portfolio ages and the average loan age increases, this annualizing effect is reduced. In fact, the annualizing effect is gone when the average loan age is 1 year, which is why I'm doing this.

Eric's, on the other hand, does not annualize the effects of late loans and defaults on a lender's ROI calculation. From what I understand, this calculation is determined by how you've done performance-wise to date. It does not annualize or predict how your other loans will perform based on what the bad ones have done. This often results in an exaggeration of ROI for young lenders (who are sure to have some defaults down the road - nobody's perfect).

Now that my Prosper portfolio is 1 year old on average, let's take a look at how these two sites tell me I'm doing. (I captured some screenshots.)

Let the battle begin!


*ding ding!*


In this corner, LendingStats :

And in the other corner, Eric's :

Results:

LendingStats: 9.46% estimated ROI (365 average loan age)

Eric's: 8.06% estimated ROI (367 average loan age)

Man, I wish LS's was closer to reality, because that would be nice. However, Eric's is much closer to what I have calculated using Excel's XIRR function. (just under 8%)

So why the big difference? (nearly 1.5%) I'm not really sure, but I have a suspicion that LS handles paid off loans much differently than Eric's. Just a hunch.

At any rate, if you really want to know how you're doing on Prosper, you should use the XIRR function in excel. It's the cat's meow.

The battle is over, and based on my stats, I declare Eric the winner!

(any input on the differences between LendingStat's and Eric's ROI calculations is welcome)