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Lending Club Introduces an Enhanced Version of PRIME

by Peter Renton on December 10, 2013

Lending Club PRIME Introduction

If you have more than $10,000 in your account then you have likely received an email from Lending Club promoting their new PRIME service. You may have also noticed a popup message on the main account screen. So what is this all about?

PRIME is a service provided by Lending Club that allows you to invest in an automated way. I started using Lending Club PRIME when I rolled over my wife’s IRA account back in early 2010. Back then PRIME accounts were very simple – you just decided on a target interest rate and Lending Club did the rest. It was a set it and forget it process. You can read my initial review of Lending Club PRIME here and also why I decided to take my accounts off PRIME.

A New and Improved Lending Club PRIME

A lot has changed since then. Lending Club still provides investors with an automated investing option but the new Lending Club PRIME has three key advantages over the old PRIME:

  1. PRIME can execute your own saved search for you – This is huge in my mind. I have some saved searches on my accounts that I run regularly but I have to login every single time to run them. Now, if I miss logging in for a while Lending Club can run one of these saved searches for me.
  2. It is not all or nothing – The original Lending Club PRIME was an all or nothing deal. You let Lending Club invest for you completely and if you made an investment they would take the account off PRIME. Now, you can have PRIME enabled and continue to invest manually while the automated investing continues to run.
  3. It is free, at least for now – PRIME accounts have had a 0.8% setup fee and through the end of December they are waiving that fee for new accounts. There have never been any ongoing fees for PRIME.

The Main Disadvantage of Lending Club PRIME

So, the first question many investors have about PRIME is when will it run. And unfortunately, it will not be run at “feeding time” (when new loans are added: 6am, 10am, 2pm, 6pm Pacific) so this is not going to be a way to automate your investing if you are focused on hand picking loans during those times.

Here is what Lending Club says as to when PRIME orders will be run:

Your PRIME account will be reviewed each business day to determine its amount of available cash. Accounts with the most available cash as a percent of the overall account size will go through the PRIME allocation service first. Overall account size and target investment allocation are NOT used to determine which PRIME accounts go first.

So, if you have let your cash build up in your account you will be first in line for a PRIME order. But Lending Club says their goal is to make at least one investment order every week on all accounts. Obviously, whether or not they can do that will depend in part on how you set up your investment criteria. There is a help page dedicated to PRIME where most questions are answered.

Who Should Switch On PRIME?

The avid Lending Club investors who login every day at feeding time are not the target of PRIME. But there are many investors who want the flexibility of choosing their own criteria but who only login once or twice a month to reinvest. These are people who should consider converting their account to PRIME. When they login they can still go ahead and make their own investments as they usually do but they can rely on Lending Club to keep their cash drag to a minimum during the times they don’t login.

Of course, for new investors who do not want to do any of the investing work themselves PRIME is a good option. You do need a minimum of $10,000 to sign up for PRIME so it is not suitable for small investors.

Also, if you have setup complex saved searches with multiple filters then PRIME is probably not a good idea. You should have fairly broad criteria otherwise PRIME will never find any loans.

How to Sign Up For Lending Club PRIME

Set Your Target Allocation - PRIME

The first step in the process of setting up Lending Club PRIME is to choose your allocation. You can choose from Lending Club’s three preset allocations with an average interest rate of 10.43%, 12.66% and 14.93% respectively. Or you can create your own allocation. This is the selection I recommend if you want to use one of your own saved searches. If you can match your target allocation to the typical target of your saved search you have a much better chance of PRIME orders being executed when using a saved search.

An Example Allocation Lending Club PRIME

There are three steps to set your allocations as you can see above. You enter the amount to invest per loan, the loan term, and then your target allocation breakdown by loan grade. Lending Club tells you their historical inventory breakdown but you can enter any numbers you like as long as they add up to 100%. Keep in mind if you choose, for example, 100% G-grade loans for your target then you will probably never reach your target allocation given that just 0.03% of all loans are G-grade.

Lending Club PRIME saved filters

Finally, there is an optional fourth step in the setup process – that is selecting a Saved Filter. Here you can choose any saved search that have setup through the Browse Notes screen. This, to me, is the only reason active investors should consider converting to PRIME. One word of warning, though. The saved search you select here will be removed from your list of saved searches when you go back into the Browse Notes screen. You can always setup a duplicate of this search if you want to invest in loans manually using the same criteria. Also, you can only use one saved search with PRIME. So it is not like Prosper’s Automated Quick Invest where you can have multiple searches run.

My Old PRIME Account is Now My New PRIME Account

A few months ago I converted my wife’s Roth IRA account from PRIME to a regular account. Now, I have converted it back to a PRIME account again. I will, however, continue to invest in some loans manually but I will also be using one of my Super Simple filters here that has a relatively broad criteria. I will report back on how this goes some time next year.

PRIME has been implemented

When you have completed the four steps you are greeted with the screen above showing the differences between your current allocation and your target allocation. You can go back in and edit your allocations or choose a different saved search at any time.

A Better Option for Hands Off Investors

While the new PRIME is not perfect, it is a better option for investors who want to get decent returns for minimal effort. I like that Lending Club has given a new commitment to PRIME investors. Several people have emailed me over the last few months saying that Lending Club was letting their cash build up in their PRIME account. With the new PRIME service that should no longer happen.

PRIME was launched last week so I pinged Lending Club today to ask how it had been going so far. They said that PRIME signups have been strong, a 50% increase in enrollment in the first week. They were also getting lots of positive feedback from investors.

I think it is a good move. But I know it won’t satisfy the many investors who want an automated way to invest at feeding time. With so many retail investors today that feature is probably not going to happen any time soon. But PRIME is a solid alternative for investors looking for a simple way to invest at Lending Club.

{ 18 comments… read them below or add one }

Don December 10, 2013 at 6:06 pm

Nice article. Thank you for posting the run-down on what LC is up to. There is a new service called Lending Robot that I use now. It’s not free but it is a great service. They have some great tools to automate your investing and I like that it is separate from LC itself. Check it out at http://www.lendingrobot.com.

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Ryan December 11, 2013 at 7:53 am

Don, glad to hear that you are enjoying LendingRobot. We just featured them over on our blog, but I wasn’t aware of anyone who had signed up or was currently using the service. However, I’ve been using their popular notes page to help me invest at feeding times. At this point, I still enjoy doing things manually, but that may change eventually as my account grows.

Peter – Thanks for the detail on PRIME, I can’t wait to see what happens with it in the future.

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Don December 15, 2013 at 10:20 pm

Ryan, I enjoy making purchases on LC manually as well but once your account grows to a certain size, it just becomes impractical to keep up with it manually. Emmanuel at LR added a capability to allow each user to set the threshold for your account below which LR will not make allocations. I have my threshold set so there is always some money that I can invest manually when I desire. You can change this threshold at any time.

What I like most about this threshold is it gives you direct control over when and how often LR will act on your behalf. If I get busy and can’t get to LR for a few days, it doesn’t matter because LR will just pick up and make sure my unallocated cash gets reinvested. However, if I want to be on top of things, I can allocate loans myself and as long as I stay below the threshold, LR won’t make any loans. In short, I can easily throttle how much LR does for me at any time and therefore I’m in complete control over how much LR costs me.

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Ryan December 16, 2013 at 9:20 pm

Don, this is a great point and definitely something I will consider down the road when I choose to auto-invest. It will be nice to offload some of the work and still manually invest when I can which will save a bit of money too. I suppose it is a good problem to have to not be able to hand pick all of your notes:) I also want to be sure we can accurately review products in the future and to do that – I need to sign up. Thanks for sharing.

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Peter Renton December 11, 2013 at 11:07 am

Thanks for sharing Don. I know about Lending Robot and plan on profiling them here in the blog soon. And Ryan, I enjoyed your piece on them on your blog.

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paul boorman December 11, 2013 at 2:15 pm

I think this arose mainly–not entirely–to get LC off the hook, so to speak. There was (is) way to much demand for the amount of loans available–mainly due to institutional investors competing with individusals. This created lots of idle cash and complaints (including mine)–“Why doesn’t PRIME handle my money more efficiently?” Now you are PRIME setting your own parameters, and if they are tight you’re out of luck. (Just read the myriad of LC warninings in this regard!)
However, I don’t blame LC. From a customer relations perspective, they had no where to go but down when they were totally responsible for meeting individual ROI’s on a timely basis..

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Peter Renton December 12, 2013 at 8:06 am

While it is true you can set your own PRIME settings, you can also select one of their preset options. This will align your target allocation with the platform and there should be no issue with inventory. As I said in the article, I think we will see Lending Club do a much better job with PRIME overall from now on.

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Venugopal Srinivasan December 13, 2013 at 4:30 pm

My experience with the old PRIME where you select your note distribution and your advisor will purchase the notes to meet your distribution has been a disaster. I have over 4000 notes and the average age is more than 15 months. I would have expected my return to be close to the middle of the distribution that LC now displays when you view your account. I am instead at the bottom of the distribution with a tiny 5.8% adjusted return. My target was 8%. I wonder whether the new automated version would be better.

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Peter Renton December 16, 2013 at 7:19 am

I think the new automated version of PRIME will be a little better but, depending on your target allocation, hitting an 8% return is a pretty high bar long term for a PRIME account. To achieve that return with PRIME, you would need to be quite aggressive.

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Mr. Quincy December 14, 2013 at 10:34 am

The communications from LendingClub have not been too clear for those that had the “old” Prime, which I did/do. Does anyone know if my “old” Prime will remain or will it be converted to the “new” Prime? If not, are there any benefits in maintaining my “old” Prime account. I enjoy finding notes on the platform but work too many hours to make that possible with any regularity, so I am more in the camp of “set it up and let it run.” Thanks.

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Peter Renton December 16, 2013 at 7:21 am

Your old PRIME account has been automatically converted to the new PRIME. So now you have the flexibility to find new notes on the platform yourself or let PRIME do the work for you.

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Tony December 29, 2013 at 10:35 am

Don I enjoy manually investing in my accounts. I don’t know if prime is good for me yet. I am the type of person who likes to see how my money is working but I am getting tired of looking at it every other day. Do you have any suggestions?
Thanks,
Tony

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Don December 30, 2013 at 2:19 pm

Tony, I recommend signing up for LendingRobot (www.lendingrobot.com). You can set a threshold as high as you like. LendingRobot will only make investments for you when you go above that threshold. So, for example, let’s say you set a threshold of $300. As long as your balance in Lending Club is less than $300 you can continue making your investments manually. If you want to take a break or you are otherwise unable to access Lending Club for a while, your balance will eventually grow above $300. When it does, Lending Robot will kick in and start making investments for you based on your filters. But, it will always leave at least $300 in your Lending Club account so whenever you’re ready, you can begin making your investments again manually.

You can change this threshold at any time. Another example: Let’s say you know you’re going to be out of the country on a personal vacation. Manually investing in Lending Club is the last thing you’d want to do during that vacation. If you use LendingRobot, you could just set your threshold to zero for the time period of your trip and LendingRobot will make investments for you until you return and reset the the threshold.

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Tony January 2, 2014 at 8:39 am

I registered with http://www.lendingrobot.com but it stated that I will have to wait for a slot or opening before I could use it. Or be invited by someone. Is this correct?
Tony

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Emmanuel January 2, 2014 at 10:34 am

Tony,

You’re correct, there’s a short waiting list, so we can ensure a smooth growth. Right now the wait is only a few days, though.
We also occasionaly send invitation codes for our existing users to share.

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Dave February 15, 2014 at 4:13 pm

I just rolled a 20k IRA into LC and signed up for Prime. I have a taxable account that I have been investing in on my own. In 2 days about 10k has been invested. I get an e-mail about 10 minutes after the “feeding times” that informs me as to how much has been invested. With that in mind, is it safe to assume that they are investing on my behalf when the new notes are being released? Maybe this is a change since the article was posted in December…?

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Peter Renton February 16, 2014 at 7:29 am

Dave, Lending Club will not say exactly when PRIME is running but my experience is similar to yours. I often receive an email stating that an investment is made soon after loans were added to the platform. So, yes, this is a change and a positive one. I know Lending Club’s management are trying to move people into PRIME (they keep lowering the minimum investment) by making it a great service.

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Dave February 16, 2014 at 9:07 am

Thanks Peter. I look forward to seeing how the Prime account does.

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