Lending Club has setup arrangements for more than $90 million in loans between borrowers and lenders during the last three years. No one can say for sure as to whether or not peer to peer lending is a fad in the world of financial innovation or will become an integral part of the lending world, but some investors are investing a portion of their nest-egg in loans to individuals through Lending Club and Prosper Marketplace with mixed results.
Like most investments, some people have lost money investing in loans through these services and some people have done quite well. As a lender, you essentially have to take on the role of the bank and do underwriting on each loan that you consider funding. If you just take a quick glance and pick whatever’s available, you’re probably going to end up losing money, but if you do a good job of coming up with some qualifications for borrowers that you lend money to, you can make a decent rate of return on your money.
Many bloggers have posted their strategies as to what types of loans they invest in online. Many have varying strategies, such as maximizing the number of loans they have and minimizing the amount that they fund in each loan. Some tend for a more conservative approach while others hope to maximize their returns by finding higher-risk loans that they believe will pan out.
Some common strategies that lenders have made use of on lending club include:
- minimizing the amount of money invested in each loan
- looking for borrowers that have a long employment history
- looking for borrowers that work in stable industries
- avoiding borrowers that have a history of late payments and defaults
- avoiding certain types of loans, such as student loans and business loans, which may represent a higher risk
- looking for borrowers with a low debt-to-income ratio
- looking for borrowers that want loans of under $5,000
- selling existing loans which may go into default on the foliofn marketplace
It’s worth searching online and seeing what investors are using as their strategies , but you will need to experiment and determine what qualifications you would like to use to determine who you want to give a loan to and who you want to pass on.
