Investors in peer to peer loans are always looking for an edge, as finding quality loans for investment purposes can be challenging. This is especially true for newer investors and individuals who are not particularly financially savvy. However, it is also true for experienced investors. Evaluating loans offered by Lending Club requires wading through a lot of data for every loan offered which can include hundreds of loans at any given time and dozens of new loans each day. What’s more, investors are taking a big chance on their strategy since they will not know for months or even years if they made the right decisions. This facet of peer to peer lending makes many investors nervous and has even led some to the conclusion that this investment is not right for them.
How can you ensure that your peer lending investment is safe and will provide the hoped for rate of return? There are several sites that claim to be able to help P2P lending investors. Some of these tend to have very little information available about the results their members have had. In this review we will look at the services provided by PeerLoanAdvisor.com and the impact using them may have on your portfolio. In addition, we will look at the cost and try to determine if it is worth it.
What is PeerLoanAdvisor.com?
PeerLoanAdvisor.com was founded by analytics expert and P2P lending investor Cody Smith. The purpose of the site is to rate all loans offered by Lending Club to investors. The site provides ratings based on borrower data available on the Lending Club platform. For each loan, members will see the loan number, a score from 0 to 100, the grade of the loan, and the date the loan was listed. The ratings are produced by an algorithm developed after studying past loans. Lending Club provides loan application and repayment information to investors for this type of analysis.
According to Cody, “I began developing my algorithm for use with my own investment portfolio. When I saw the results I realized other investors would find this information very useful. I believe that the ratings algorithm my team developed gives individual investors the same tools that large institutional investors have.” This sounds great, but let’s look more closely at the cost and potential benefits of this service.
Is PeerLoanAdvisor.com Worth It?
Memberships come in two forms: Monthly and six month periods. The monthly membership costs $9 per month which is billed monthly for twelve months or until a member cancels. A member can cancel at any time with no additional fees. The six month membership costs $39.95 which is billed one time with no additional costs (unless a member chooses to renew). Total cost for one year based on two six month memberships is $79.90 which equates to about 0.8% of a $10,000 portfolio. In order for the site to be worth it to an investor, they would need to increase the investors return by at least this amount.
The site claims that using their ratings can produce an increase in return of up to 5 percentage points above the Lending Club return average for a portfolio with moderate risk. This seems like a good deal, but have members seen this type of return? We had the opportunity review several accounts and saw that the average annual return on the portion of the portfolio that was invested using ratings from PeerLoanAdvisor.com was significantly higher than the averages. In fact, returns were even more than 5 percentage points above Lending Club averages. This held true even after adjusting for portfolio age and risk level (based on average interest rate and grade).
So, if you are wondering whether PeerLoanAdvisor.com is a good deal, the numbers indicate that it is. For the hands on investor who wants to manage their own portfolio this site can be a valuable tool. The price is reasonable and the fact that you can try it out for one month at a cost of only $9 is very enticing. What about investors who use automated investing, you might ask? Professional investors generally agree that the auto investing tools available simply do not have the flexibility to optimize a portfolio, and even the most skilled user of this tool will see returns barely above the platform averages over the long term. This means that managing your own portfolio and using an appropriate tool is essential for success in peer to peer lending.