Would I Lend To You?

I’m having fun playing banker at Lending Club. It’s early in the game but I enjoy seeing the tiny returns I’m getting via interest. Right now, my Adjusted Net Annualized Return is 7.97%.  I only lend to borrowers with A or B ratings, and this is definitely better than the measly interest in my savings account.

I don’t use the automatic investing option because I have my own quirky set of criteria for choosing lenders, that may change depending on my mood.

1) Borrower Rating: A or B only. I’m not looking for double digit gains so I’m staying safe with lower-risk borrowers

2) Reason for Loan: Credit card or Loan consolidation, maybe Medical. I do not lend to people who want money for a big purchase, home purchase, or vacation. You should know better than to borrow money for a vacation!  I will fund for medical because I’m soft-hearted.

3) Years on the Job: At least 5. I know that in this day/age/economy, staying on a job for 5 years isn’t necessarily a measure of financial stability. However, I still feel more comfortable lending to someone who has job security.

4) Term: 36 months. I prefer borrowers who intend to pay off their loans in 36 months, vs. 60 months.  My unqualified and financially unsound reason is that I feel that someone who wants to pay off in 36 months is more determined.

5) Debt To Income Ratio: I haven’t quite decided on a criteria but lower is better.

6) Loan Amount: Up to $25,000

7) Geography: Preferably NOT in the South, which I read has a higher loan default rate. I’m also careful about California.

8) Profession: I do not fund people who are owners, self-employed, or president/CEO. It’s very easy to give yourself a title while running a bad business. I have a slight preference for people who work in engineering/I.T.

9) Number of Delinquencies – no more than 1, preferably 0

We’ll see how my unscientifically proven lending criteria does in the long run. If you’re doing peer-to-peer lending, care to share your winning formula?