I can still remember when I discovered Prosper and Peer to Peer lending. Sitting at my in-laws house, I was looking through “Money” magazine and saw the caption, “Make 15% interest by becoming your own bank.”
Having unsuccessfully dabbled in the stock market where I was certain that Satellite Radio was going to make me my first million dollars, I read through the article and found the idea of peer lending and enticing interest rates to be right up my alley.
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- Taking on high-risk loans without having a clearly laid out investing plan can end up bad for you, that's a mistake many new investors make. Not all high-risk loans default, but they are high-risk for a reason.
- Now that Prosper requires a credit score of 640+ for borrowers, there are far less high-risk borrowers on the platform than a few years ago. The company does a great job at weeding out potential defaults by checking various mandatory criteria in order to give investors a high quality pool of borrowers to choose from.
- It helps to look at the line of work your potential borrower is in, although it doesn't always tell the full story it is a big help. As to be expected, doctors and lawyers have lower default rates than people who work in food services for example. But surprisingly enough, college seniors have a much lower default rate than professional realtors.
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