I’ve received questions from a few readers about various aspects of Lending Club. For the most part, these have centered on loan availability and selection criteria. With that in mind…
I thought it would be I’d share some tips that I’ve picked up over the years. Recall that, though my current stint with Lending Club only dates back a few months, I’ve dabbled with them off an on of a period of several years.
For starters, yes, due to the popularity of the platform, it can be difficult at times to find suitable notes. In fact, we went through a period a month or two ago when it was really difficult. There were fewer notes overall, and they were disappearing from the lending platform much more quickly than normal.
Since that time, I’m happy to report that the situation seems to have improved. Yes, the best (in my estimation, anyway) loans still go quickly, but it’s not particularly difficult to deploy your money if you know what you’re doing.
Here are some tips…
Automate your loan selection
First and foremost, you need to automate your loan selection. I say this for two reasons: (1) you can waste a lot of time reading through loan applications, and (2) as noted above, the best loans are funded rather quickly.
The good news is that Lending Club offers filters that can be fine-tuned to suit your tastes and then saved. From there, it’s just a matter of running the filter and investing in any notes that match.
I’ve detailed my loan selection criteria in the past.
Know when new loans are listed
Of course, having awesome filters doesn’t really help if there aren’t any matching loans on the market when you stop by. Yes, there are always loans available, but the ones that hang around aren’t very attractive.
As it turns out, Lending Club adds new loans to their platform every day at 6AM, 10AM, 2PM and 6PM Pacific. Thus, you would be well advised to and run your filters at these specific times of day.
I actually have reminders that pop up on my computer at 9AM, 1PM, 5PM, and 9PM Eastern. If I don’t have any cash that needs to be invested, I ignore them. If I do, and I have a spare moment, I pop in and run my filters.
Act quickly when you see a match
This is important… Even though loan availability has improved somewhat, the best loans often receive full funding within a few minutes of hitting the market.
Thus, when you see matches, add them throw them in your “cart” right away and execute your order. If you don’t, they may be gone by the time you try to act on them, and you’ll be left to pick through the dregs.
As noted above, I no longer bother reading the loan applications. With sufficiently detailed filters, I’m not sure there’s much additional (useful) information included in the application.
Protip: I always buy $50 notes (see below). If more loans match than I have funds available, I always select those with the highest interest rates (i.e., lowest grade) in hopes of maximizing my returns while still controlling risk (thanks to specific filter criteria).
Adjust your note size
In my view, it’s important to strike a balance between diversification and efficiency. Said another way, I want to invest in a variety of loans to minimize the risk associated with any one borrower, but I also want to deploy my cash quickly.
For my purposes, I’ve found that $50 notes (i.e., $50 invested per loan) strikes a nice balance. My exposure to any one borrower still isn’t all that big and I only need to find half as many good loans as if I was investing the $25 minimum in each.
Reinvest your money asap
Finally, it’s important to keep in mind that your idle cash doesn’t earn any interest. Thus, you need to keep your money invested.
Each month, you’ll receive payments that include a return of principal plus interest. If you don’t reinvest regularly, your cash will pile up while your portfolio shrinks.
To make this as easy and painless as possibly, you can set up an alert that will notify you when your cash balance reaches a certain level.
To do so, click the “Account” link at the top of the page and then the “Alert” link from your account summary.