I've been aware of these for a while, but seem to be hearing about them more and more as a legit investment opportunity and another way to diversify ones investment portfolio.
I've spent the last few days trying to understand the ins and outs of investing and reading some reviews regarding the major players.
Anyone here have any experiences they are willing to share?
The cliff notes of this is that there are websites that connect lenders (investors) and borrowers. This is all done outside of banks and the traditional borrowing process. Borrowers go through credit checks and are given a rating based on their score as well as a multitude of other criteria. The rating on one of the sites is A - G, with A's presenting the lowest risk and therefore given the best rates (say 6-7%) and G's presenting the highest risk for default and thus getting the highest rates (say 25-30%). They appear to be limited to 36/60 month loans so your money is tied up for 3-5 years.
Lenders/Investors can then choose which loans they want to invest in and how much they want to invest (I think the minimum is like $25 per loan), so one could potentially invest a few thousand dollars across hundreds of different loans to further spread their risk.
The default rates are published and seem to be reasonable given the parameters and must be factored in to your expected return. Based on what I am seeing, for example, the G's at 25% interest probably default 2 out of 3 times meaning your expected rate would be 8% or so. The A's look to default at a much lower rate as their expected return is in line with the given interest rate.
Of course through all of this, the company gets their share, which looks to be about 1%.
I've spent the last few days trying to understand the ins and outs of investing and reading some reviews regarding the major players.
Anyone here have any experiences they are willing to share?
The cliff notes of this is that there are websites that connect lenders (investors) and borrowers. This is all done outside of banks and the traditional borrowing process. Borrowers go through credit checks and are given a rating based on their score as well as a multitude of other criteria. The rating on one of the sites is A - G, with A's presenting the lowest risk and therefore given the best rates (say 6-7%) and G's presenting the highest risk for default and thus getting the highest rates (say 25-30%). They appear to be limited to 36/60 month loans so your money is tied up for 3-5 years.
Lenders/Investors can then choose which loans they want to invest in and how much they want to invest (I think the minimum is like $25 per loan), so one could potentially invest a few thousand dollars across hundreds of different loans to further spread their risk.
The default rates are published and seem to be reasonable given the parameters and must be factored in to your expected return. Based on what I am seeing, for example, the G's at 25% interest probably default 2 out of 3 times meaning your expected rate would be 8% or so. The A's look to default at a much lower rate as their expected return is in line with the given interest rate.
Of course through all of this, the company gets their share, which looks to be about 1%.
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