I had a problem with Lending Club. No, the problem isn't with the returns. Those are just fine. In fact, my Lending Club returns are an annualized 15.2% since I started investing with them 23 months ago. The problem isn't with defaults either, since I don't have any despite having owned something like 700 notes with a current average age of 9-10 months. (Keep in mind part of my strategy is selling late notes at a discount before they reach default status.) The problem I have with Lending Club is that everyone else has noticed it is a good investment as well.
Returns Too High
The double digit returns that early adopters have been earning (and continue to earn when they can get the notes) have become attractive to institutional investors. As such, there is now a great deal of competition on the lending platform website for the best notes. Lending Club puts new notes up there at 4 separate times during the day (6am, 10 am, 2 pm, and 6 pm PT). If you log on at those times to get new notes, you'll quickly see that not only are all of the good ones completely filled within a minute or two, but a lot of times you don't even have time to complete the transaction before the note is gone. It wasn't that long ago that even the best notes didn't fill for a day or two, and many notes didn't fill for a week or two, if at all. As much as I liked the solid returns, I was having difficulty getting any significant amount of money invested, even with increasing the amount I was willing to invest per note. I'm generally a fairly hands-off investor, and really only make one transaction per month with the other 95% of my portfolio. I'm simply not willing (nor able) to log in to Lending Club 4 times per day at defined times in order to continue this investment. I went looking for a mutual fund or some other method of converting myself from an individual investor into an institutional investor. Those in the know suggested I take a look at Interest Radar.
Interest Radar Automatically Invests In Lending Club Notes
Interest Radar is a website/company that has a lot of different features for Lending Club investors. However, the most important one to me is their Auto Invest feature. Instead of me having to log in 4 times at day at specific times, now I don't have to log in at all. Interest Radar selects notes according to my criteria, and automatically invests in them. I rolled over another small chunk of Roth IRA money there a week ago, and it has already found me 30 notes that meet my rather stringent criteria, not to mention continuing to reinvest the proceeds of my other notes automatically. Now 30 notes might not seem like a lot to you, but the way things were going, I was doing well to find a couple of notes a week before because I simply couldn't log in that often and it would take me months to invest a few thousand dollars.
Portfolio Analysis
There are lots of other cool features at Interest Radar. The website is still a little clunky, but the more I play around with it the more useful features I find. It provides a lot of ways to analyze your current portfolio of loans. For example, it'll tell you how much income your portfolio will bring in every day of the month, and which states provide most of your loans (Texas and California for me.) One of the more interesting analyses is under the “Risk” tab, where it tells you about your non-performing loans. For example, right now it tells me I have 5 loans in the grace period and 2 loans that are 16-30 days late. It also tells me the average trading ask price on the secondary market. Since I plan to sell these, that's pretty useful information. (If I price them below the average price, they're much more likely to sell.)
Loan Analysis
There are also lots of ways to search for and analyze loans that are currently for sale, both on the primary and secondary market. You can set up any number of different ways to filter through the notes. Interest Radar also has some recommended strategies to achieve double digit returns. You don't even have to develop your own.
Auto Sell Feature
There is also an auto-sell feature, but it's definitely a little more complicated than the auto-buy feature and I'm still working on figuring it out. It looks like I can set it up to sell my late notes so I'll almost never have to log in to Lending Club. Selling is a much smaller deal for me than buying though, and thus far I don't mind logging in a few times a month to tend my tiny garden of late notes.
Pricing
Interest Radar offers these valuable services for $10 per month, or half that if you sign up for a year at a time ($59.99). On a $20K portfolio, that's the equivalent of an expense ratio of 0.30%. Oh, and they offer the first month as a free trial. In my opinion, this is a fantastic deal that allows me to continue to reap double digit returns while almost completely eliminating the hassle factor, which I view as the single biggest downside of Peer To Peer Lending. By way of full disclosure, after I decided to write this post I contacted the owner of Interest Radar and he agreed to give me a free year of service in exchange for the review. However, that's the extent of my financial relationship with them. I don't get any money if you decide to sign-up with them. But if you decide to open an account with Lending Club, please do it through the links on this page as I get a small commission if you do so.
Sign up with Lending Club
Sign up with Interest Radar
Have you used Interest Radar or a similar service? What do you think? Is it worth it to automate your investing?
Jim, it looks like the Lending Club link is currently broken.
Interesting article. I did find funny the irony of you not be able to get good notes and then turning to a company to fix the problem that is likely the cause of you not being able to get good notes in the first place.
Lending club claimed they would have this for free by late summer (which has passed) http://blog.lendingclub.com/2013/04/20/a-note-on-our-recent-loan-volume/
I was eyeing this (http://www.nickelsteamroller.com/blog/2013/06/nsrp-signup-is-now-open/) but it is too expensive ($25/month). $60 a year seems much more reasonable (though if lending club adds this feature < 6 months it will be a loss over the $10 a month.
With Interest Radar, can you set up multiple filters and combine the results of them? Thanks.
Yes, you can. You can also run completely independent filters at the same time.
Thanks. I just set up an account. Do you have any idea how the auto sell works – is there a way I can set up so it sells once it is a certain number of days late – if so how?
Also – any thoughts on their prepackaged strategies?
I haven’t spent a lot of time on the auto sell yet, but when I get around to it I’ll either post it here or make another post on it.
I think the prepackaged strategies are fine. I just already had one I liked and had been using so I stuck with it.
I am also interested how you might use auto sell to implement your strategy of selling notes which were in grace period but then returned to current. I haven’t found a way to do this automatically…
I agree, selling is a pain.
I recently joined Lending Club, and per your advice, used Interest Radar. I find it great for buying.
However, I am at a loss for auto selling. Fortunately, I am not to the point of selling late loans. But wanted to see if you ever mastered the auto-sell feature with Interest Radar, and if so, and insight worth sharing?
No, I have not. I’m exploring another option that may soon offer auto selling.
Also, crazy that 1/3 notes that hit my filter for the 10am PT was fully funded before interest radar could buy it.
Yea, it’s pretty competitive for the best notes, even with a service like interest radar.
Why in the world would you want to lend money to individuals who cannot secure funds from a reputable financial institution?
These people obviously can not get cash advance from credit card, bank, savings and loan, union for good reasons.
If you want to gamble, catch a plane and go to Vegas. Don’t do this with your future.
Interesting question to ask in a week when the US is talking about defaulting on its bonds. 🙂
The reason why is that even if many of these individuals default the investment still gives a solid return. It’s a little like an index fund. Yes, you bought a bunch of loser stocks, but overall you make out well.
I am terribly disappointed to live in a state which prohibits participation in micro-lending. Talk about backwards.
You can buy notes on the secondary market. It’s a tricky business though.
http://www.lendingmemo.com/lending-club-auto-investing-screen-scraping/
Does this mean the end of Interest Radar?
They’re still working fine as near as I can tell. Will it go away eventually? Probably. All LC has to do is provide a similar service for free.
All my investing is on a risk-reward basis. Given that risk is a very complex term using many metrics, one can still get down to a basic, thumbnail measurement metric that is useful for this type of investment. Have you found a way to quantify risk on peer-to-peer?
You’re the one saying risk can be boiled down to a basic thumbnail measurement metric. Have YOU found a way to quantify risk on peer to peer? I certainly have not, but I disagree with your assertion that it can be boiled down. Risk is complex, and I’ll be honest, I’m not liking the risk I saw show up in this asset class this year.