Most P2P lending investors who pick their own loans have a strategy or system they use to find loans that they feel are quality investments. Many investors use similar methods which include certain pieces of information provided by the peer to peer lending platform. In this post, we will look closely at peer to peer lending investing and the information the platforms make available. In addition, we will discuss some other tips for building your portfolio of loans.
Joint Applications
Some loan applications will be made by two applicants, usually a married couple. The application will show the income of the primary applicant as well as the total for both parties. In some situations, this can be a good thing for the lender. If both applicants have a high income then they will likely still be able to pay the loan if one of them is out of work for a short time. However, if one of the incomes is low then it is possible that loan repayment will cease immediately if the higher income earner is out of work. So looking at whether there is a joint applicant might be helpful when making these decisions.
Best Time To Buy
Lending Club offers loans to investors four times a day, seven days a week, 365 days a year. However, not all times and days have the same number of loans available. Late Sunday and early Monday seem to have very few loans available so it may not be worth your time to check. Many investors are not able to review loans during working hours. This is not bad because good loans are made available later in the day and loans from earlier in the day will likely still be listed for investors.
Borrower Data
Dozens of pieces of information provided by the borrower, as well as credit report information, is available to p2p lending investors. Knowing what to look for and how to use this information can be the difference between making money and losing it. There is some consensus about which information is the most useful. This includes monthly income, debt to income ratio, home ownership, verification of income, late payments in the last 24 months. The tricky part is knowing how to use this information. You need to set limits for each of these fields. Income of more than $75,000 (which is verified by Lending Club) and a debt to income ratio of less than 20% are a good place to start. Borrowers with a mortgage have the best record of paying back loans. Finally, look for no late payments in the past two years which is a very good indicator of credit worthiness.
Diversification
This is a basic tip, but one that needs to be repeated often. Every investor in any type of investment vehicle should diversify. For your lending club strategy this means putting your money into at least 100 loans. Since the minimum investment is $25 per loan, that means you must have at least $2,500 in your account. If you have more, you can either buy more loans or put more money into the loans you are buying. Many investors put more money into the loans that they think are particularly good in an effort to increase their overall return.
Peer to peer lending investing can be very rewarding for successful investors. Following these simple tips is a good start. In addition, experience and always learning more is essential to meeting and exceeding your investing goals.
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