Prosper vs. LendingClub SmackDown–Who has the best interest rates?

Lending Club vs. Prosper: A detailed look at the differences and similarities of these two P2P lending platforms. Compare borrower and investor rates.

LendingClub vs. Prosper

If you think Prosper and Lending Club set interest rates the same way, think again. In fact, how they set interest rates is fundamentally different.

Prosper versus Lending Club: Borrowers

Perhaps the most significant difference between Prosper and Lending Club is borrower qualifications. Lending Club requires a higher credit score, lower debt-to-income ratio, and longer credit history. In contrast, Prosper has developed a proprietary scoring formula called the Prosper Score. Together with a borrower’s FICO score, Prosper assigns each borrower this rating. Then they use the rating to set interest rates.

Whether you are a lender, borrower, or both, understanding the difference and how each site sets interest rates is critical. So in this SmackDown between the two Peer-to-Peer Lending giants, we’ll look at how each sets interest rates and then discuss how to evaluate which one is best for you.

Snapshot

LendingClub Prosper
Loan Amount $1,000 to $40,000 $2,000 to $35,000
Interest Rate 5.99% to 35.89% 5.99% to 35.99%
Fees 1% to 6% 1% to 5%
Loan Term 3 to 5 years 3 to 5 years
Qualifying
  • Credit Score: 600 or higher
  • 3 years of credit history
  • Debt-to-income Ratio of 40% or less
  • Credit Score: 640 or higher
  • Debt-to-income Ratio of 50% or less
Availability Not available to residents of Iowa, West Virginia, Guam or Puerto Rico Not available to residents of Iowa, Maine, North Dakota, and West Virginia
Check Rates
Check Rates

How Prosper Sets Interest Rates

Several ingredients go into Prosper’s interest rates. As an initial matter, borrowers must satisfy the following requirements:

  • They must be U.S. residents;
  • They must have a a FICO credit score of 640 or higher (if you don’t know your score, you can get it at the FICO website for a small fee);
  • They must have a bank account; and
  • They must have a Social Security Number

Once a borrower meets these requirements, Prosper determines rates based on the following:

  • Prosper Rating
  • Expected Loss
  • Loan term
  • Economic Environment
  • Competitive Environment

Of these factors, the Prosper Rating is the most significant. It comprises two scores: a borrower’s FICO score and Prosper Score. Prosper devised the Prosper Score, which it claims gives a more precise picture of creditworthiness than does a traditional credit score.

Prosper developed the Prosper Score using its loan data. The score attempts to estimate the likelihood that a loan will go 61+ days past due. The score, which ranges from a low of one to a high of 10, is based on the following factors:

  • Number of trades
  • Number of delinquent accounts
  • Number of inquiries
  • Number of recently opened trades
  • Amount of available credit on bankcards
  • Bankcard utilization

Each borrower is then assigned a grade which, along with the loan term (three or five years), produces an interest rate. Because these rates can change daily, you should visit the official Prosper website to see current rates. But as of the date of this article, here are grades and interest rates for each Prosper Rating:

Prosper Loan Rates

How Lending Club Sets Interest Rates

To understand how Lending Club sets interest rates, the first step is looking at a borrower’s qualifications. Lending Club is pickier than Prosper. This is good for investors, but not always so good for borrowers. Here’s the list of borrower qualifications:

  • To borrow through Lending Club, you must be a US citizen or permanent resident and at least 18 years old with a valid bank account, a valid Social Security Number and a FICO score of at least 600.
  • Borrowers will need a debt-to-income ratio (excluding mortgage) no greater than 40%.
  • In addition, your credit history must show that you are a responsible borrower:
    • at least three years of credit history, showing no current delinquencies, recent bankruptcies (seven years), open tax liens, charge-offs or non-medical collections account in the past 12 months;
    • for credit scores 740 and higher, you need to have less than nine inquiries on your credit report in the last six months;
    • for credit scores below 740, you need to have less than four inquiries on your credit report in the last six months;
    • a revolving credit utilization of less than 100%; and
    • more than three accounts in your credit report, of which more than two are currently open.

From all the above data, Lending Club assigns a grade to each borrower. The credit grades range from A to G, and each letter grade has a sub-grade ranging from one to five. For each grade and sub-grade, Lending Club sets what it calls a base rate. Lending Club then adds to the base rate an adjustment for risk and volatility.

 

Now at this point your head may be spinning. The good news for borrowers is that Lending Club can calculate all of this in an instant once it has your application, credit score, and credit history. But to give you an idea of rates as of today, here’s a snapshot of rates for grades A through D:

Lending Club Interest Rates

How to Determine Which is Best for You

Borrowers want the lowest interest rate they can get. Investors want the highest interest rate they can get, given the risk they are assuming. So how do you compare Lending Club and Prosper?

I’ve invested in loans on both sites for several years. I’ve generally had very good experience with both. From this experience, I’ve come to the conclusion that both companies are good options. However, Lending Club has the slight edge for investors, and Prosper has a slight edge for borrowers.

A big part of my conclusion is the fact that Lending Club’s standards for borrowers is higher. That protects investors, but can eliminate Lending Club has an option for a lot of borrowers.

Comparing rates between the two sites is difficult because they each use proprietary grading systems. You can’t simply compare one grade to the other. As a borrower, I’d look into both to see which one offered the lowest rate. As an investor, I’d use Lending Club for higher grade investments. But I’d look to Prosper if I wanted to take on some additional risk in exchange for the chance of higher returns.

Checking Interest Rates

As a borrower, the only way to know for sure who has the best rate is to check. With both LendingClub and Prosper, you can check your rate without hurting your credit score. It’s a good idea to do this preliminary shopping-around step before formally applying for credit with either creditor.

As LendingClub explains:

[C]hecking your rate won’t affect your credit score. Applying for a loan through LendingClub generates a soft credit inquiry, which we use to understand your creditworthiness. This is visible only to you, not to creditors or other users of your credit report.

Check LendingClub Rates
Check Prosper Rates

Prosper versus Lending Club: Investors

Investor Qualifications

Not everybody can invest with LendingClub and Prosper. To do so, you must meet a couple of qualifications.

First, investing is not available in every state. For LendingClub, you must be a resident of one of the following states:

Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Prosper is available in fewer states:

Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.

Second, you must have a minimum income and/or net worth. What’s more, these requirements can vary from one state to the next. As a general rule, you either need an annual salary of $70,000 AND a net worth of at least $70,000, OR you need a net worth of at least $250,000. In some states, notably California, the rules are a bit different.

My Experience as a P2P Investor

As noted above, I’ve invested with both Prosper and LendingClub for years. For this comparison, I thought I’d share with you my actual returns to date.

One thing is critical to keep in mind. You can’t simply compare interest rates. We must also factor in risk. In the case of Prosper, most of my notes fall in categories C and D. For LendingClub, most of the notes fall in the B and C categories. The companies define these categories using different criteria. But my overall risk is similar on both platforms.

Prosper Returns

My annualized net returns from Prosper are 5.18%. That return is based on a portfolio of notes with the following characteristics:

Prosper Returns

LendingClub Returns

LendingClub ReturnsMy returns through LendingClub are higher, coming in at 6.58%. At one point I experimented with buying notes on the secondary market. Given the time needed to evaluate these notes, however, the return just wasn’t worth it.

If you’d like to sign-up to be a lender or borrower, you can use the following links:


Topics: P2P Lending

42 Responses to “Prosper vs. LendingClub SmackDown–Who has the best interest rates?”

  1. I’m with David. This is an excellent overview. They have such similarities…but the differences are significant for lenders. I think this is probably the best explanation I’ve seen of the bidding process on Prosper. I’d prefer the Lending Club, I think… I’m still not sure I’ll lend on either, but it’s good to know.

    Thanks.

    • David & Mrs. Micah, the difference in how interest rates are set was a recent revelation for me. In fact, I emailed Lending Club to make sure I understand their process. I had initially just assumed LC used a bidding process, too. But as I dug into the details, it became clear that the process was very different from Prosper’s. I’m glad you liked the article.

  2. Very nice article. I thought the process was similar until I did a little more digging. I likened Prosper to eBay, and Lending Club to Amazon. I thought it was a fair assessment given the lending styles. And if I were a borrower, I would definitely choose Prosper. The chance of having my interest rates bid down is good enough that I would go that route.

    • Bidding down a loan is a great idea once fully funded but I have lent on several “A” loans on Prosper where the final interest rate is well above 15% for the borrower. What happens is that Lenders look for these A-B credit loans that are not fully funded and in the final minutes of bidding. They will ofter shell out just enough to fully fund the loan at the high interest rate. There is no guarantees that the loan will be fully funded and be bid down.

  3. Can you back up the claim that there is a HUGE difference in risk between credit scores of 640 and 679? Actually, I’d suggest that other factors are much more important, and simply cutting the credit scores into smaller chunks is statistically irrelevant. You’re going to get a much larger change in risk based on home-ownership or the percentage of credit card credit used — so much so that a 10 point difference in credit score isn’t even worth worrying over.

    Of course, I don’t have more data, and lending club doesn’t have any default data I could find (and hasn’t been around long enough to have statistically significant data either way). I’d suggest that you be really careful of treating credit scores as some sort of panacea though. At Prosper, most lenders (through the portfolios) take into account a range of data from credit score, to DTI ratio to credit utilization to the amount of the loan. You should take a look at lendingstats.com to get a feel for all the data available before deciding that Prosper offers worse rates for lenders.

    From a credit risk perspective, there is a HUGE difference between a credit score of 640 and 679.

    • Deamiter, I absolutely agree that other factors besides credit score are critical to assessing credit risk. In fact, that is where Prosper lenders make big mistakes; they rely too heavily just on credit score. Lending Club’s formula takes into consideration debt-to-income ratio and amount of the loan. Credit utilization is another important factor as you mention. But credit score is still very important, and the historical default rate for a credit score of 640 is 3.16% compared to a default rate of 1.58% for a credit score of 679. This data comes from Lending Club, which gets the data from TransUnion. And a difference of more than 1.5% is HUGE in my opinion.

    • Awesome way to say it. I wasn’t all that impressed with the Lending Club experience. I happened to have had an 815 credit score when I borrowed from them, and paid back after only a few months with some cash I received for contract work.

      My take was that one individual was so greedy and actually haranging me that it turned me way off. Additionally, while I realize that their rates are lower than the credit card companies, their lending rates were just too high compared to the interest rate a bank would offer given my credit score at the time. It was as if I didn’t have a credit history the way Lending Club just willy nilly jacked up the interest rate for someone who was a first time borrower with them. Probably just paying the French founder too handsomely. It’s a turn off, and I am more likely to deal with a bank’s underwriting for future loans. As an investor, I have not tested the waters, but probably won’t go there. People are too tempted to just not pay back the money.

  4. Very interesting article.

    I think one of the things that helps borrowers on Prosper is the sheer number of lenders who just want to lend money on Prosper and aren’t doing anything close to the analysis that you did.

    Kind of like a hot stock – some people just want to own it.

    Mike

  5. I’m still not sure why you keep claiming that Prosper lenders don’t take all these factors into account. As you’ve lent at Prosper, you know that they give you the default information when you place a bid. I suppose there are probably people who ignore the estimated return (including fees and the default rate) and just look at the loan’s interest rate, but since the default information (calculated using the wide varity of factors we’ve been discussing) is right there at every single bid, I’m not sure how you’ve concluded that Prosper lenders focus solely on credit score.

    From my perspective, there are likely small pockets where one of the sites might outperform the other by up to 1% or so, but on the whole, they both use the same information to calculate the same default rates — the only difference is in bidding vs. “buy it now” pricing.

    I’m not particularly invested in Prosper being better (except that I have money in Prosper and would prefer not to think I made a mistake) but I still don’t see any justification for your repeated claim that Prosper lenders focus more on credit score than LendingClub lenders. In fact, I’d think it’d be the other way around — in breaking down credit scores into such tiny packets, it encourages lenders to focus on points rather than treating credit score as just another general category.

    In the end though, I think it’s a mistake to treat lenders as if they’re carefully making decisions since a majority of loans on Prosper are funded at least in part through the portfolio plans which drive the rates to preset values — much like LendingClub.

    • Deamiter, I too have Prosper loans. My point here is not that lending on Prosper is a mistake. But I do suspect that lenders in general are not very good at assessing credit risk, and most probably haven’t even considered interest rate risk. What’s interesting to me are Prosper’s portfolio plans, which I’ve used. These plans put me into an 8% loan with a borrower who as a DTI of 25%. LC would have charged this same borrower more than 12%. That’s a significant difference, and obviously in that one case Prosper was better for the borrower and LC would have been better for the lender. Of course, that was just one loan. Although there is quite a bit out on the web now suggesting that the number of lenders on Prosper is resulting in low interest rates that do not fully account for credit risk. My question back to you would be why do you have so much confidence in Prosper lender’s to properly assess credit risk? I read financial statements all day for a living, and I don’t think for one minute that I’m qualified to assess a borrower’s credit risk. That’s why I used Prosper’s portfolio plans and why I believe everybody should assess a Prosper loan in light of what interest rate that same loan would generate on Lending Club.

  6. I don’t think I’m qualified (in any way) to assess credit risk, but Prosper does that for you by giving an estimated default rate for any given loan. My understanding is that LendingClub determines default rate solely on the basis of the credit score, and then just bumps up the interest rate based on other factors like DTI. Instead Prosper uses all these factors to calculate the default rate in the first place and allows lenders to make decisions based on a much more complete assessment of default risk.

    Again, I’d suggest you spend some time on LendingStats.com as depending on the other details of the loan, 8% could be quite reasonable. For under $10,000 loans, with a DTI around 25%, there are no historical defaults and only 1% late (by no more than a month though). Since the default rate is so low, the average rate is quite justifiably 8.66%.

    I should be very clear that I highly value this post of yours! Also, I too am quite wary of the portfolio plans — they funnel too much money into specific loans driving the interest rates below market value in my opinion. Lendingstats.com gives a very good idea of how different factors have historically affected default rates. You have to understand statistics pretty well to accurately interpret the data (for example, it’s important to understand that default rates will be somewhat underreported for loans originating less than 3 years ago) but even a novice can get decent relative default information.

    But I digress, I just want to be VERY clear that I personally value this post quite a bit. Coming from a scientific background, I sometimes forget that nitpicking isn’t the norm for everybody. I apologize if I came across as arrogant or argumentative — I’m afraid I’m accustomed to a culture where we tend to express value for others’ ideas by quibbling over details and in my excitement over such an interesting topic, I forgot to rein myself in.

  7. You are completely right about Prosper lenders underestimating the probability of default. The people making these loans generally are not trained to assess risk, such as an actuary. I did a detailed post on my blog about the risks of P2P lending and the lenders are NOT being compensated for their risk as they should be based on simple mathematical analysis. Lending Tree is better, but I think that the DTI ratio is too restrictive. There are a number of reasons that DTI may be higher that won’t have the equivalent of a 16 subgrade drop in creditworthiness; most banks use a 36% DTI ratio as their cut off. Look at these loans with a skeptical eye, if other financing is available why would someone use P2P? To get a lower rate than their credit would otherwise support! Lenders beware.

  8. FYI, Prosper uses Experian Plus Score, which differs from FICO credit score LC uses. This means that the score bands are not directly comparable.

    Also to Deamiter, your argument is entirely based on the reliability of Prosper’s estimated default rate, which is a good reference, but I’m not sure if it is statistically significant yet. First of all, the history is too short. Secondly, you are talking about a total of 18 loans for $77K (from Prosper’s performance data). That’s not enough to get a statistically significant number. Therefore, whatever Prosper uses to estimate the default rate would likely not have enough data points to be reliable either.

    • Don, thanks for the info. I would add that Prosper and LC default rates are not comparable for other reasons, too. Most importantly, LC doesn’t use default data from LC loans to set its interest rates. It uses default data from TransUnion, which I believe would be far more useful than the limited default data available on either Prosper or LC loans.

  9. I’m thinking of investing in P2P lending and have been reading blogs, websites, etc. to prepare. This is the best side-by-side comparison of Prosper and LC that I’ve seen.

    I’m leaning toward LC, as it’s overall a simpler approach for busy me. I don’t have time to calculate over and over again which loans at what amounts would fit neatly into my investment strategy while the kids are killing each other, dinner is burning, etc. By giving me a chart, I can select a range of credit ratings, say B-D, that give me the best yield at the most acceptable risk (for me) and then invest accordingly.

    And I hate the idea of bidding on loans. It just reeks of testosterone (sorry, guys) and doesn’t fit my no-surprises personality.

    Thanks for this info. It helps immensely!

  10. While P2P lending is a fascinating topic, how stable/reliable both companies are? After all they aren’t providing any FDIC insurance and are asking for SS and bank account numbers.

    What happens if their financial models are not working out or they having liquidity problems? They have been in existence for such short periods of time.

    Will appreciate people’s thoughts. Tnx.

    • Mike, the key to remembers is that Lending Club and Prosper service the loan. If either company goes under, they would simply transfer the servicing of the loans to another company. Here is Prosper’s explanation of what would happen should they go out of business: “In short, no new loans would be created, all lender funds not actively associated with a loan would be returned to the individual lenders immediately, and all existing loans will be serviced to completion by a third party loan servicing agent.

      If Prosper were to go out of business, the third party loan servicing agent would take over the administrative responsibilities such as the transfer of monthly loan payments, providing timely payment notices, monthly lender statements and required tax documentation, overseeing the collection of delinquent loans on behalf of the lender, and reporting payment performance to credit bureaus.

      Borrowers of course are still obligated to make payments on their loan. Prosper’s existence (or lack thereof) does not change that obligation legally or otherwise, and failure to meet those obligations would result in the same consequences for the borrower.”

      Of course, loans on Prosper and Lending Club are not FDIC insured, just like corporate bonds are not FDIC insured. So the risk of default is a very real risk that must be considered before investing in P2P loans.

  11. NorCalSavant

    DR, Very nice post and comments. I would agree that Lending club, especially with new rules is probably a better deal for lenders than Prosper if it comes back with the same system. Liquidity concerns could be answered a little by the new note selling feature on Lending Club. However, one thing I would like to point out about P2P lending in general is that for the lenders the interest rates on these loans are not directly comparable with interest rates and returns on CDs or savings accounts ignoring default risk and liquidity. In general interest rates on a P2P loan have to be about twice the interest rate on a CD or savings account for the same duration to result in similar total cumulative return. You can see the detailed calculations and explanations here.

  12. zylstra, that’s right. Prosper originally filed an S-1 registration statement with the SEC first, but messed it up. Now they are behind Lending Club. The big difference is that LC has a secondary market for its notes where investors can buy and sell existing loans. Prosper won’t be able to do this until its S-1 goes effective.

  13. There’s really no buyer for your notes, unless you sell for a loss. Recently, the number of people lending money have dropped off drastically. As for you paypal deposit, you have to use it all with LendingClub or they’ll lock your account out. Imagine that, having your account locked out when it’s not even in the contract.

    A company that makes up new unadvertised rules with your money. You decide.

  14. Excellent post. Between yours and NorCalSavant’s post about this on his/her blog, it has been immensely informative for me. I am looking at lending and might seem to be leaning towards Lendingclub.

  15. I think prosper and lending club were created for individuals who want higher gains than their current banking accounts without going through the difficult and difficult process of learning about stocks, bonds and other financial instruments instead spending a couple of hours reading the publications on the sites, “blogs’, reviews and the general terms involved. It’s a lazy man’s investment and one that has infinitely more risk than other investment vehicles; namely they have the borrowers have NO OBLIGATION or Incentive to pay you back. And often your lending money to people who have that very tendency; this is why they are imploring for money on these sites because the bank’s will give them loans; they wouldn’t touch most of these creditors with a 10 foot pool with a 100 dollar 100 percent apr loan.

  16. I was on board with Prosper when they first started, I think it was 2006? Anyway, I dove in and invested in 11 loans with an average credit rating of B-. All told after three years I had lost 15 percent of my original principal. I had four loans of the 11 default in the very first year. Since those initial defaults I stayed away from Prosper. I still love the idea but the loss potential seems very high.

  17. I do believe prosper is acting in line with lending club because as a lender on prosper this is NOT how they conduct buisiness now. Prosper assigns the interest rate based on their proprietary rating which takes into account a credit score and other factors. You can simply invest or not invest based on your strategies and willingness to assume a certain level of risk for a return.

  18. i got a prosper loan the same day i posted it and my credit grade was a D on prosper. I paid the loan back in 3 years and never missed a payment. I borrowed 6,000 and paid back about 7,450. It was fast and easy monthly payments. I would lend money in a heart beat on here but prosper doesn’t take lenders in ohio as of yet

  19. Just to add to this post – borrowing rates on Lending Club are significantly less expensive than on Prosper today. Folks at Prosper will verify this. True, that Prosper does take a somewhat higher risk portfolio, but when comparing apples-to-apples, using the same DTI range, and the same credit score % bracket (in FICO and Experian) APRs on Lending Club loans are often between 2-4% less.

  20. So just to be clear, if you have a bankruptcy in your past there’s no way you will get a loan through LendingClub.com? Personally, my bankruptcy was discharged 7 years ago and I have been rebuilding my credit since day one. My FICO is now 726 and I have a mortgage and five credit cards all in good standing, the most recent being DISCOVER which approved me for a $5,500 line last month (DISCOVER was also part of my bankruptcy so I was quite surprised when they approved my application). Would I be denied by LendingClub?

  21. As someone who has used Lending Club for a long time, I’d have to say I find the company a little shaky. I once watched one of their investing webinars when they were starting up, and the leaders of the company made some pretty rough comments when they thought the mic was off afterwards. Nothing corrupt or illegal, just vulgar and unprofessional — which I think represents what’s going on behind the scenes quite well. Their policies are also very anti-investor — they almost always waive late fees (which are supposed to go to lenders), and collections are a joke. They allow people to request $35,000 without requiring so much as a reason why – most of their loans now have blank descriptions (avoid the auto-investing feature!). My dealings with their investor customer service have been poor, too — often taking several days to get a response and you never can get a name of who’s helping you. Often you’ll just get a “thank you for your patience” along with a canned response anyway – again, they just don’t seem to respect the investor. Also, their 1% fee is a misnomer – they round and never make up for it, so you’ll actually end up paying around 1.5 to 2% in fees.

  22. I have secured Contract Notes Receivable which I would like to borrow against. I will pay an Average Annual ROI Rate of 12% to an investor. Five Year Note secured by Contracts secured with (14) Comm’l R/E properties. Seeking a $150k up to $250k 5 Year Note with Interest Only paid quarterly….PRIN due at Maturity….Send me an email if interested.

  23. Jennifer

    I’ve had much better luck with lending club. When I call I get a live person. They had me listed much higher on their risk scale ( which gave me an incredible interest rate that was super low) and no extra hoops to jump through. One lender funded me 100% himself. Prosper took lenders in very small increments….even though all my info was the same on both sites.

  24. Nosferatu

    Sick of not earning any money at the Credit Union I was at I looked for alternatives. I have been with lending club for about 5 years. My adjusted net annualized return is 7.89%. I have had 7 notes that were charged off and that has brought down my portfolio from an expected interest return rate of 10.59% (if everything had went fine, which of course it didn’t). I have 182 notes and of course I was very concerned when early on 7 notes had been charged off (some pretty early) and only like 21 had been paid back fully. Now 80 have been paid back in full and no new notes have been charged off. It is rare for me now to have a note that is later than 30 days. My experience is that Lending Club somehow usually gets the borrower to pay the outstanding debt. I have my style that I have developed through trial and error. I look at the total amount the person is borrowing. I don’t loan to anyone who wants more than $11,000. I like to stay under $10,000. The lower the better. Have to think about from the perspective of the borrower. You can feel in over your head if the amount to be paid back is too much Then I click on the loan and I look at a few factors that are make or break. The first area is to see if they have had any major derogatories or public records or delinquencies. If I see anything in their past, then I move on to the next note to find someone without this type of ”history”. If this area is flawless, then I move on to look at DTI (debt to income ratio). I usually only lend if it is under 25% and the lower the better. If this meets my expectations than I look at other factors like credit utilization. I don’t like seeing anything above 60-70% because then they are getting close to maxing it out. The final factors are length of employment (I like more than 1 year) and the percentage of loan versus monthly income. I like to keep this at about 10-12% maximum. For example if they make $2000. Than I would not loan my money if they had to make payments higher than $240. Just not realistic. I don’t invest a ton of money and have a total account value of just under $5000. I started off not assessing the credit risks enough and since then this has worked for me. By no means am I telling anyone else to use my strategy (disclaimer) but it might work for you too.

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