Understanding the characteristics of a given investment space helps one to understand and appreciate that given space. This article discusses some of the statistics of Peer-to-Peer loans (P2P), thus developing a better understanding of P2P lending.
There is a myth that P2P borrowers are all subprime level borrowers. However as noted in the paper “P2P Lending for Institutional Investors and Wealth Managers: An Overview” not all borrowers are accepted onto a P2P lending platform. Prosper and Lending Club developed standards and policies of vetting and underwriting loans with an estimated 90% rejection rate.1 Prosper and Lending Club tends to concentrate on borrowers with a Fico score of 640 or better, also known as prime and near-prime borrowers.2
Prosper and Lending Club, the two largest P2P U.S. platforms utilize a seven level grade default risk ranking system to determine an appropriate interest rate for the given loan. This is similar to the rating process of banks or investment rating agencies.
According to the Federal Reserve System, the seasonally adjusted charge-off for credit cards averaged READ MORE
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Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at firstname.lastname@example.org Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.
Past performance is not necessarily indicative of future results. Only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.