Simple Filters for Investing in Lending Club and Prosper

02-28-14 Simple Filters for Investing in Lending Club and Prosper - Binocular View

While developing my investment strategy for Lending Club and Prosper for 2014, I also wanted to create some simple filters for investing as well. My thought for doing this was inspired by Peter Renton first putting out some simple filters back in 2012. He has since provided updates to these filters along with his traditional and more specific criteria.

I’ve designed my simple filters as a strategy that allows investors to invest directly through the interface of each company with a higher chance of success in finding notes. Many criteria available at Nickel Steamroller and other statistics sites are not easily translated to the platforms without the API interface or downloading the entire available loan listing and manually filtering. By skipping those steps, investors can get their money to work in a straightforward fashion. Naturally, this won’t prevent some of the onslaught and frenzy that is now normal around the note release times, but with a simple investment strategy, you give yourself a great chance.

Simple Lending Club Strategy

This filter will look fairly similar to some readers, as it is very close to what Peter over at Lend Academy has recently posted. The difference between the two comes from the addition of the employment length filter and higher income requirements. You can check out the returns from this filter at Nickel Steamroller: Simple Lending Club Filter – Nickel Steamroller

  • Loan Grade: C, D, E, F, and G
  • Inquiries last six months: Zero
  • Purpose: Credit Card Refinancing and Debt Consolidation only
  • Income: Greater than or equal to $60,000 per year or $5,000 per month
  • Employment Length: Greater than or equal to five years
Simple Prosper Marketplace Strategy

Of the two simple filters, this one is my favorite by far. Capturing almost 10% of all issued notes from Prosper, it significantly upgrades the potential returns and allows investors to get their money to work. You can check out the returns from this filter at Nickel Steamroller: Simple Prosper Filter – Nickel Steamroller

  • Loan Grade: C, D, E, and HR
  • Inquiries last six months: Zero
  • Income: Greater than $50,000
  • Term: 36-Month Only
Simple Peer to Peer Lending Strategy Summary

Both of the filters above will provide investors a sizeable opportunity for investing their cash, while limiting their losses overall. Below is a table summarizing both Lending Club and Prosper’s overall returns in comparison to the returns for the filters above. Of course, returns are dynamic, so these snapshots are from today, February 28, 2014.

 
All Loans
All Loans ROI
Filtered Loans
Filtered ROI
▲ ROI
Lending Club
259,445
8.76%
14,608
12.94%
4.18%
Prosper
82,392
9.61%
6,431
15.22%
5.61%

Have you had any trouble staying invested in your peer to peer lending accounts? What steps have you taken to eliminate any uninvested cash?

If you’re interested in investing in either Lending Club or Prosper and have questions, feel free to let me know in the comments below or via my contact page. To check out my peer to peer lending investments, check out my Lending Club and Prosper pages.

Flickr: compujeramey

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Comments

  1. You’re really on top of this P2P lending stuff WYOR. Have you ever considered doing a “how to invest in p2p” ebook, video, or course. I think it might sell very well.
    -Bryan

    • Thanks Bryan, I appreciate your support. At this point, I haven’t considered writing a book, but unfortunately don’t have the time. However, that is a great idea and might be something for me to consider down the road.

  2. Nicely done. I feel like everybody is moving in a similar direction here. Filter criteria used to be all over the place for different blogs, and now things look more solidified across different voices. I’m interested if this is the result of more refined LC/P underwriting, or if we’re just getting better at it.

    Aside from filtering for State, yours look similar to mine.

    • Thanks Simon, I appreciate that. I think for simple filters like this, there are really only a couple of standardized metrics that provide large movement of the return needle. I personally don’t use the above filters as I prefer to use my more specific ones posted early this month, but think they are great options for non-API or other automated investing. I would imagine they are starting to look alike as more and more people are become aware of what others are using to find success. If I see something works for you, I’m probably going to look into and research it and use it if it appeals to me.

  3. In Germany, no one have heard from a Lending Club.
    Can you please explain, what a “Lending Club” is?

    Thanks a lot!

    Best regards
    D-S

    • Lending Club is an American company that facilitates peer to peer loans between borrowers and investors. Peer to peer lending is a growing industry in which individuals, like myself, can lend money to other individuals. Lending Club is the market share leader for this industry in the United States with Prosper Marketplace being other major peer to peer loan facilitator. For those in Germany, I believe Auxmoney and isePankur are two options available to you for investment.

      Hope that brief synopsis answers your question!

  4. I like the P2P lending but am somewhat restricted in Texas. I can only buy notes on the secondary market. This means I have a small fraction of notes to choose from and limited filters. I am adding $25/week to lending club to play around on the secondary market and so far it looks pretty good. They have added a couple of filters but it’s nowhere near the amount you can get if you invest directly. I’m finding decent notes but it’s tedious to do so. Therefore, I’m not planning on a huge account there yet.

    Thanks for providing the filters and the strategy you use. This is helpful.

    • AAI: I actually prefer the secondary market. Why do you believe that there is only a small fraction of notes to choose from? My experience have been that there are more then enough notes.

      • I agree there are plenty of options for folks to invest in, however it is a much more tedious process given the current limitations of the secondary market. For example, I can filter based on credit report inquiries, monthly income, public records, etc. All things that are unavailable directly through the secondary market without a lot of clicking, or use of other third party tools.

        Thanks for your additional input and experience PMU!

    • Like I’ve said before Brent, hang on for a few more months and you should be good to invest directly once Lending Club has their IPO. Once that happens I’d encourage you to check things out with a larger account to ensure some solid diversification.

      The secondary market can be a phenomenal means of investing if you take the time to filter and understand the options available. I know some secondary market investors utilize tools like Interest Radar to help filter and go through notes in further detail besides what is available in the current filters.

      I appreciate you stopping by and your continued interest in Lending Club and P2P Lending as a whole.

  5. wyor: how have you found the primary market experience in getting your money deployed? Are there delays like all the horror stories I hear implay? I’ve never done the primary market so your post was really interesting to me. Thanks.

    • I’m not sure what you mean by delays, but for those investing in higher risk notes, finding notes has been tough outside the note release times. Prior to the beginning of this year I was investing manually only and kept my Lending Club accounts fully invested with no issue. Of course, I was logging in during release times to find notes. Since then, I’ve gained some limited access to some automated tools to try out. However, I will say that manually investing for above average returns is still possible, especially given broader filters like the ones above.

      With Prosper recently limiting institutional investors even further, retail investors this past month or so have had much more success. I have always used Prosper’s Quick Invest feature with varied levels of success, so the recent change is a boon for individual investors (as long as they keep the borrowers coming in).

      Thanks again for your input and question!

  6. Great article W2R. The returns here look awesome!

    The P2P lending sites in the UK only advertise around 5% returns which are just not worth the hassle. I wonder why it’s so much lower over here, any ideas?

    • I think part of the reason the returns are lower is that the UK companies have default guarantees in place, essentially eliminating defaults. As a result, given the lower level of risk involved, you are getting a corresponding lower return.

      Thanks for stopping by Firestarter!

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