If you plan on lending money to people through Lending Club or Prosper any time soon, you’re going to need to know some of the basic strategies that lenders are using to maximize their rates of return. We recently covered that a large number of loans is favorable to average your default rates, but did you know that the type of loan is a major indicator as to whether or not the borrower will default?
In a recent video conference with investors, Scott Langmack, an investor that has averaged over 12% with Lending Club showed us what types of loans perform well and which don’t. Here’s an info graphic that was provided to investors that saw the presentation.
The average interest rates that Lending Club investors are earning is 9.64%, but by being selective about the types of loans you provide, you can minimize your default rate and get an even better return on your investment. An interesting note about the chart above is that business loans issued in 2007 performed much more poorly than those issued in 2008 and 2009 after Lending Club revamped how they approve loans categorized for business expansion.
