The following article is a comprehensive LendingRobot Review. My goal is to provide potential users an authentic review of the website by sharing my experience over the past year.
I only use Lending Club for my peer loan investing so this article is written from that viewpoint. Click here to learn more about investing with Lending Club.
Click here to read my latest Lending Club investing update prior to using LendingRobot.
Update 08/10/2017: LendingRobot and NSR Invest have merged.
Peer lending is a relatively new investment vehicle for income investors. Investors invest small amounts of money (usually $25) which fund loans requested by borrowers. The matching of investors to borrowers is done in a marketplace such as Lending Club or Prosper. Peer lending is also known as peer to peer lending or marketplace lending.
Each borrower loan is typically funded by multiple investors. This spreads out the risk of default. Loans are for many uses including credit card payoff, debt consolidation, home improvement, car purchases, and for starting a business.
Peer lending is a way for investors to diversify their income producing investments instead of relying on a few traditional sources (i.e. bonds, interest on cash, dividends etc.).
The barriers to entry are low, especially compared to other investments like real estate. So it’s a relatively quick and easy way to generate income.
That, plus the attractive returns, was the original appeal for me.
I started investing in 2013 by using a loan filter that guided my decisions to fund certain loans. This required the manual steps of logging into my Lending Club account, running the filter, then picking the notes that looked most attractive.
That strategy is far outdated now. For one, my original loan filter is outdated. The loan data changes so filters must change. And the manual aspect of investing with a filter, looking at the borrower’s job title, state, and credit rating etc was too time-consuming and arbitrary.
But since the early days of filtering, lending has become much easier through automation. Now peer lending is more passive than ever, and one of the most passive investment vehicles out there.
Last year I switched from manual filtering to using a really smart robot to invest my funds for me automatically. The robot eliminates the manual step of selecting loans and instead relies on ever-changing credit models and data available from the lending platforms. The robot gets smarter by analyzing the most recent data available.
The tool I’m using to automatically invest my Lending Club notes is LendingRobot. I opened my account in August of 2015. Now that I’ve been using the tool for about a year, it’s a good time to review the service.
Overall I’ve been very happy with the usability and results and continue to use the platform because it has automated my investing, provided solid returns, and the cost is very reasonable.
A quick note before getting into the nitty-gritty: LendingRobot is constantly improving the service. Soon after this post is written, new features may be added or changed. That’s the nature of the industry. I’ll do my best to keep this post relevant as the service improves.
What Is LendingRobot?
LendingRobot is an automation tool used in conjunction with an existing Lending Club, Prosper, or Funding Circle investing account. It links to the lending platforms (using API’s) to execute trades on your behalf based on statistical analysis of historical data.
LendingRobot allows you to “invest like a bank”, letting small investors achieve solid returns through algorithmic investing.
The company is a self-proclaimed robo-adviser exclusively for peer lending. “Robo-adviser” is a sort of trendy term in the investment world that usually brings to mind Betterment and Wealthfront. Both of those provide hands-off investing focused on asset allocation and tax loss harvesting in equities and bonds.
Peer lending investors previously relied on manual filtering loan data to develop an investment strategy. The lending platforms like Lending Club and Prosper provide open access to historic data and various tools can be used to sort through data to try to predict returns.
LendingRobot eliminates the manual filtering process by figuring out what notes are least likely to default based on the historical data.
In other words, LendingRobot does the filtering and investing for you… much better and much faster.
Why Use LendingRobot Instead of Filtering?
LendingRobot isn’t a stand-alone peer lending platform. Instead, it links to your existing platform account and executes trades based on criteria.
LendingRobot saves you time by investing for you. Reinvestment occurs much faster than can be done manually. Prompt reinvestment prevents your cash from sitting idle. The robot can purchase loans much faster than you can with a mouse.
With the broader onset of automation, many of the best notes (highest expected return, lowest risk of default) are gone before you could manually buy them. You simply can’t invest in the best loans on your own.
This is the problem that made me investigate automated services. Early in my investing, great notes were almost always available using my standard filter. As the industry progressed, I could see that the best loans were not available to me anymore. I had to accept lower returns if I was to keep investing manually.
Out of necessity, I switched.
But more importantly, algorithmic investing is statistically better than manually filtering. Individuals can’t keep up with computers.
Lending Club itself is getting better at assigning the right rates based on past data. So to identify anomalies and achieve higher returns, investors need a constantly changing algorithm to find the best notes.
Why Not Use the Lending Club Automated Tool?
Lending Club allows investors to lend money through an internal automation system for free. Users put in their selected criteria, and the system is supposed to buy the loans for you based on the criteria.
I attempted to use the internal automation feature in my Lending Club account. But no notes were ever purchased even though I knew loans in my criteria frequently hit the board. Idle cash piled up.
I later learned that Lending Club cannot always automate the process for the most popular loans because it cannot choose which investors should get the best loans.
For a good explanation of why, LendingRobot’s FAQs explains:
How Does LendingRobot Work With Lending Club?
Through an API (fancy computer nerd term for access channel or interface), LendingRobot has access to certain parts of your Lending Club account. It cannot withdraw your money, but it controls how it’s invested.
When LendingRobot initiates a note purchase, your Lending Club account reacts the same as when you initiate a purchase. You get a confirmation via email from Lending Club, and the note shows up in your Notes area. My notes are automatically put into a Portfolios called Aggressive – LendingRobot, Conservative – LendingRobot or a custom advanced-mode name.
Log into your LendingRobot account and you’ll learn more details about your account. You can see what notes were purchased, and the expected return of those notes among other metrics.
Your LendingRobot account operates the facilitation of your automation strategy and provides analytics. Your Lending Club account functions just as it always does. Not much changes on the Lending Club side except the for the amount of time your spend there and what’s in the portfolios.
Setting up a LendingRobot Account
Setting up LendingRobot is easy. First, enter your email and basic information. Then, the most important part is naming your account and linking it to your Lending Club account via the API key.
Enter an account name that means something to you. I only have one account.
Then retrieve your account number and Lending Club API key from the Settings link on the Lending Club main screen. At the bottom of your “My Profile” page is the API Key. Copy and paste it into the LendingRobot field called API Key.
And that’s all it takes to set up your account.
The next step is to set up your investment strategy. But first, let’s look at navigation.
LendingRobot uses a simple navigation panel on the left side of the screen. Use this to work your way around your account. Just about everything you need is accessed from this panel.
The top menu is where you find the FAQs, Market Overview and Performance (broader statistics, current loan data, and links to your account information.
Getting around the site is fairly easy. Some account information seems to be displayed repetitively, such as content from the Summary and the Account Name screen. However, this could be due to me having just one account linked. More accounts would aggregate all the accounts making the Summary more unique.
From the left panel, you can view your notes, change account settings, initial cash transfers, view tax statements and control secondary market activity.
Primary Market – Setting up your Investment Strategy
The Primary Market is where the notes become available on Lending Club’s site when a new loan becomes available for investing. The Secondary Market is a marketplace where investors can buy or sell already issued notes. This first section is about the Primary Market.
LendingRobot gives you two options for setting up your investment strategy. The first is a simplified version of the tool where you pick your desired expected return. The second gives you more control, enabling rule creation.
I started investing with my LendingRobot account using the Fully Automated Mode. Then I switched over to Advanced Mode for a few months, and now I’m back to fully automated again. I like using them both, but Advanced Mode takes more time and effort.
Since I don’t spend a lot of time on my peer lending activities, my Advanced Mode criteria often became outdated. Fully Automated is always updating itself so I find that it more closely fits my passive investing style.
Most users will appreciate the simplicity of Fully Automated Mode and be comfortable with it. Advanced Mode gives the investor more control, but the interface can be a little tricky to get used to.
Fully Automated Mode
Fully Automated Mode is the most popular choice for peer lenders using LendingRobot because it’s so easy. All you do is slide the purple dot along the line to choose your desired expected return.
Simply slide the dot between Conservative and Aggressive. The tool displays an Expected Return, and probability distribution chart.
Below that is the Estimated Loan Distribution. These are the letter ratings of loans that the automation tool will likely invest in.
In other words, you set the return, and the algorithms will take care of everything else. LendingRobot tries to “cherry pick” loans that are less likely to default, increasing returns for users.
The returns, of course, are based on historical data and are not guaranteed. Check out the LendingRobot blog for how the fully automatic version works.
From my experience, when I set my expected return to 8%, most of the purchased loans have much higher interest rates. Those are then mixed with many sub 6% loans. I expected loans to be selected in the 7-9% range, but most are outside of that range, including many “A” loans, then “D” through “F”. When averaged out, the expected return is near the selected number.
Advanced Mode gives the investor more control over the investments. You choose the criteria for the algorithm, and LendingRobot purchases the available loans. Control is a major upside if you’re into the statistics of peer lending. However, you’ll need to monitor and update your personalized rule. And you should read up on basic loan filtering before you try.
The Aggressive #2 screenshot below was taken a while back. Now this rule is outdated and not as many loans fit the criteria.
Criteria are set in a rule. Investors can design multiple rules, and the prioritize them. See this rule I created below.
Based on this rule, the algorithm will purchase loans with an estimated return of 13% and above. Only 199 loans that fit that criteria are typically available per week.
Below is the criteria I used for the Aggressive #2 Advanced Mode rule.
I’ve chosen 7 criteria for this rule. The options are easily manipulated by sliding the purple dot back and forth. Other criteria are chosen by highlighting, as I did above for the Loan Purpose criteria.
By setting advance rules, investors can attempt to get higher rates of return than the Fully Automated mode. 26 advanced rule criteria are available for your selection.
Below is another simpler rule I created. Expected return is 12% and only 85 loans are available each week.
If you are more comfortable having control over your investments, advanced filtering may be for you. However, LendingRobot warns investors that they should know what they’re before trying Advanced Mode.
Though mostly user-friendly, I find the 26 criteria to be disorganized when they are not selected. See below. Once you select a field, it opens and is editable. However, some improvements could be made.
The “+/-” circles are OK, but the choices all together could be put in a table or lined up on top of each other. Or they could make it more like Lending Club, where some of the main filtering criteria are available, but you need to select more from an expandable table.
My one other complaint about Advanced Mode is that you cannot work on designing rules while using Fully Automated mode. You have to shut off Fully Automated in order to experiment with Advanced. It would be nice if there was a sandbox where users could spend time designing rules while still utilizing Fully Automated mode.
If you still want to invest some of your funds on your own at Lending Club, LendingRobot gives you the option to leave some cash alone in your account. It separates Managed Principal (what they’ve invested) from non-Managed Principal (what you invested on your own) which is important for pricing. Then choose how much you want to leave alone in your account.
Set the “minimum cash balance” to say, $100, and your cash balance will never go below that level. You can then go directly into your Lending Club account to find loans manually.
The minimum cash balance can also be used to pause your automated invest. Set it to $10,000 or some high number, and your cash levels will build up if you want to draw down funds. I leave mine at zero to allow LendingRobot invest whatever cash is available.
Fully Automated mode invests the minimum of $25 per note. Alternatively, Advance Mode offers the option to invest more money per loan, but still in increments of $25. High account value investors sometimes select $50-100 increments to invest idle money quicker.
Once your investment strategy is up and running, your Summary is updated every time you log in. More and more useful visual tools and view have been added to the Summary page over time showing that LendingRobot is constantly working on providing new and better ways to analyze your portfolio. I’ll highlight a few items below.
The first portion shows the total value of your Lending Club account and a progress line. It also shows your portfolio health and the expected return of the account at the top.
Below that it shows a summary of your account(s) split up by managed principal (money invested using LendingRobot), non-managed principal (money invested manually in Lending Club), and cash. Next to the value of each principal amount is the expected return.
Expected return is explained this way in the FAQs:
The Expected Return is the number generated from aggregating the whole portfolio’s cash flows. Each loan’s cash flows, actual and expected, are combined into one time series of cash flows and then a single annualized IRR is computed.
For a detailed explanation of how this is calculated, read this blog post, updated July 28th, 2016.
The following screen shot was taken on 08/09/2016 of my actual account. You can see the expected return of my total portfolio, managed principal (managed by LendingRobot) vs. my own manual selections prior to starting LendingRobot.
The expected return of my previous manual selections is 10.39%. The loans selected by LendingRobot are expected to return 12.78%.
Another highlight of the dashboard is the Activity section. The Activity area is helpful to see how many purchases have been completed in a given time period. It also contains a “Health Monitoring” section which lists out the movement of troublesome notes.
Lastly, there’s a forecasting section that predicts cash flow and the value of the portfolio. Below is the No Reinvestment option. There’s also a Full Reinvestment option.
Notes Portfolio Composition
One of the cooler visualization features is the Portfolio Composition view. This is in the “Notes” section of the left side panel. You can view your portfolio composition by Grade, Status or Issue Date. The data is also listed out in table format (not shown).
The Portfolio Composition view shows the expected return and health of your portfolio by grade and by vintage.
LendingRobot empowers you to buy and sell notes on an independent secondary marketplace called Folio Investing. The Folio secondary market is typically reached from your Lending Club account dashboard. But LendingRobot can now buy and sell your notes for you through another API.
I have not yet participated in the secondary market either through the Folio Investing network directly, or through LendingRobot. Since I am not utilizing this tool, I am unable to review the functionality or vouch for it.
It is available to LendingRobot paying clients with accounts totaling at least $10,000.
Instead allowing notes to default, some investors choose to sell notes at the first sign of non-performance (the Grace Period). Others may wait longer to sell notes.
On the other side, buyers who may not be able to invest directly through Lending Club (due to state restrictions), or buyers looking to acquire notes at a discount, can use the marketplace to buy notes.
In your account setting, you can link your secondary market account to LendingRobot and set up your investment strategy. Many investors sell off non-performing loans to help increase returns. For the sake of simplicity at tax time, and passivity, I do not practice selling notes on the secondary markets.
Read the Lendingrobot blog post about secondary market trading to learn more.
Pricing for LendingRobot is simple. You pay an annual fee of 0.45% of your LendingRobot managed principal above $5,000. Pricing is not based on your entire Lending Club account balance.
When you start investing with LendingRobot, the algorithm takes your cash balance and makes purchases until there is no cash available. That may be only $100. Only money invested by LendingRobot, the “managed principal”, is eligible to be charged a fee.
Looking at my earlier account screenshot, my LendingRobot managed principal value is $6,621 while my non-managed principal is $3,947. The $3,947 balance is the loans still left in my account that I manually selected.
So in this case, I pay an annualized fee of 0.45% on $1,621 ($6,621-$5,000) or $7.29 per year or $0.61 per month.
To help understand this simply, LendingRobot has a handy calculator on the website.
Since LendingRobot never actually touches your invested money, the fee is paid via credit card.
As my account grows and my previous manual notes mature and get paid off, LendingRobot will reinvest the money and those funds will then be managed by LendingRobot. This is a reasonable fee in my view. Earlier, I showed that my returns are expected to be about 2.39% higher for the managed principal versus the non-manged principal. That’s plenty of buffer to pay the fee and still received out-sized gains beyond what I could select manually.
But most importantly, and the main reason I used the tool, is the process is completely automatic. So I let the money get invested for me and I do very little, making this investment strategy almost completely passive.
I’ve been investing for more than a year with LendingRobot and my fees have been minimal. It’s a convenient pricing method so that users can become comfortable investing this way first. If you don’t like it, you can easily close your account at any time and go back to manual.
Now that I’m over the $5,000 and I’ve been a happy customer for a full year, there’s no turning back for me. I don’t mind paying the fee at all, especially as long as my expected return remains above the fully automated setting.
My current managed principal expected return is about 13%, but I have the fully automated mode set to invest at 8% return. This could be because the system automation is simply “beating” my target return. Or it builds in a buffer for when the economy turns and loans default more frequently. I don’t expect to earn more that what I request. But for now, my expected return is higher.
As the account has matured over time, my Net Annualized Return (NAR), that is the estimated return that Lending Club calculates, has been slowly falling. It’s now around 10%. This is the number I use for my own tracking purposes since it accounts for non-performing notes.
Falling NAR is due to the account coming of age. After three years, many of the original notes I invested in have been fully paid off. Typically, as the account matures, returns fall and then stabilize. That said, my account has maintained annual returns greater than 10% since I started investing.
From Lending Club accounts, you can look at your returns compared to others with a similar profile. Below is a view of mine (my account indicated by the blue dot). You can see that at near 10% NAR, my returns are quite high compared to others of a similar maturity, confirming healthy returns comfortably above the bulk of similar accounts.
I first credit this to using a conservative filter early on in my investing that led to very few defaults in the first year. Second, I credit the strong performance in the past year to LendingRobot.
Conclusion of the LendingRobot Review
After a year of being a customer, I recommend LendingRobot for Lending Club investors looking to automate their note selection. If you’re new to peer lending altogether, I’d first take a stab at manual selection to help understand the process. After a month or two, it makes sense to move to an automated platform because the algorithms are smarter than you.
To learn more about using LendingRobot, check out the Vimeo page for a bunch of videos demonstrating the website. These should be helpful for potential users if this article has kept you interested for this long.
To get started today, you first need to open an account with Lending Club. Investing with Lending Club has provided me 10%+ returns over the past three years, supplementing my dividend and real estate income sources. I recommend Lending Club to investors looking to expand their income streams. Check out all of my lending related articles here. Thanks for reading this LendingRobot review. Please share your experience with or questions about the website in the comments section below.
Disclosure: The author is not affiliated with LendingRobot other than being a paying customer. This review was written by myself and on my own accord. I am not being compensated by LendingRobot for this post. The author has an affiliate relationship with Lending Club and other companies that may be mentioned in this article. The author is also long Lending Club (LC) stock.
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