Starting out on Lender Club as an investor may be a bit overwhelming at first, but it certainly has its rewards if you choose to stick around. Assuming that you are already familiar with the concept of peer to peer lending (if you are not, you can find out more here: review of Lending Club), we would like to help you navigate through the extensive filter system that Lender Club has creating for picking up individual loan notes to add to your portfolio. In addition, we will share some strategies for making the final selection that might be useful to new investors.
First of all you need to select your search criteria from the “Browse notes” section:
- Verified income – as a beginner, it might be a good idea to deal with borrowers whose income has already been verified to avoid scam loans (yes, it is possible, even in secure places like Lender Club).
- Exclude loans already invested in – always tick the box for this option, since it will leave out any loans you have already dealt with and you will avoid investing too heavily in the same loan and thus lose out on diversification benefits.
- Debt to income ratio – this is an important metric to consider. The higher the percentage, the less likely it is that the borrower will be able to repay the loan and the riskier the investment becomes, so set the slider somewhere in the lower middle. If you set it too low, you might not get too many loans to choose from in the search results.
- Loan purpose – this assigns a category to the loan (home, car, etc.), but is not a vital criteria and you might want to skip it as a beginning.
- Minimum length of employment – set the slider to at least one year of employment. If the borrower has not held a permanent position for at least a year, it may be doubtful that he or she would be able to cover the monthly payments.
- Term (36 or 60 months) – this tells you how fast you are going to get your returns. Usually, 3-year loans are less popular among borrowers because they are associated with higher monthly payments. From an investor’s point of view, however, the 3-year loans are more attractive as they yield higher returns faster.
- Credit score – as a beginner, it is a good idea to choose to top few credit rating brackets (tick 2 or 3 from the bottom up) to minimize risk.
- Delinquencies – since you are just starting out, don’t risk too much by investing in a loan whose owner has defaulted on a loan in the past two years.
- Additional filters – finally, you will get the chance to add any additional filters you want from a rich drop down menu. Don’t add ones you are not sure about. In general, after you have filled out the default filters, you should be all set to make your choice.
When you are presented with the list of search results, you will get mainly A and B grade loans, since you plaid it relatively safely with the filters. To maximize your returns select a few of the B-graded loans.