This is the essence of filtering peer to peer loans. We filter by (1) examining the historical loan data for credit variables that perform above average, and (2) invest in notes that match that criteria.
Furthermore, we don’t even have to do all the grunt work of compiling all the historical loan data ourselves. Generous investors like Michael Philips of the site NickelSteamroller (NSR) have already done this and have released this data to the public.
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- Watch out for borrowers who have a high number of credit inquiries within the last 6 months of their credit history. They are more likely to turn into defaulted loans and make a riskier investment.
- Do your due diligence if you want to maximize returns on your peer-to-peer loans, Lending Club and Prosper do a great job of rating prospective borrowers but they aren't perfect. Even borrowers with the same credit grade can be prove to be different in regards to paying back your loans. There are often "less desirable" loans that can be cherry-picked as well if you study the potential borrowers carefully.
- The safe play isn't always the winning play. Because of the higher interest rates, many savvy investors actually have far more success loaning to the high risk D-G grade loans, the return on investment is temptingly high.