Learn To Lend

Prosper, Lending Club, & Zopa right for different types of lenders

You need to understand the model you’re utilizing in peer-to-peer lending. They all have nuances and differences. [Mark Meyer, director of the Filene Research Institute]

Depending on the level of risk you’re willing to accept and the amount of return you’re targeting for your loan, you’ll want to consider different person to person loan sites:

• Lending Club, only those with a FICO score of at least 640 can apply for a loan, and a borrower’s debt-to-income ratio can be no more than 30%
• Prosper, allows the market to decide which borrowers get funded, so any borrower — regardless of credit score — can make a pitch.
• Borrowers at Zopa need at least a 640 FICO score, and must become a member of a credit union.

This isn’t to say you can’t find quality debt to finance on Prosper, you just have to spend more time screening for quality lenders.  And while Zopa US has tighter loan application restrictions, it also offers lower returns with its fixed rate certificates.

As a lender, you’re in the driver’s seat. Jean M. Garascia, associate analyst for Javelin Strategy & Research points out that “The demand for loans is much higher than the actual capital available”.  Be selective in the loans you fund, there are many potential borrowers out there, make sure you have a process in place to find those that best fit your risk/reward comfort level.

Source: Wall Street Journal – Borrowing From Peers