How Ken From Lendstats Earns 16% Investing in Prosper Loans

 

(August 2012) Ken is the name of the investor that runs the website Lendstats.com, which tracks the performance of loans made through the P2P lending companies Prosper& Lending Club . These companies allow you to lend your money to individuals for paying down credit card debt and other types of loans instead of loaning your money to companies. You can learn can learn more about peer to peer lending here.

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According to the site, Ken has $189,000 of outstanding loans made through Prosper. He is not only an evangelist for P2P investing, he has backed up his talk with a serious financial commitment. According to the LendStats site, Ken is currently averaging a return of $16.4% on his P2P laon portfolio.

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Can you replicate Ken from Lendstats.com success?

Ken from Lendstats does far better than the average investor who buys loans through Prosper. The average return on the category of loans which Ken buys (“D” rated which are moderate to high risk) is 9% for loans issued between 2010-2012. The return represents the interest rate on the loans (in the mid 20% range) minus the losses on unpaid loans. How is Ken outperforming the averages?

I haven’t spoken to Ken from Lendstats, but my guess is that he does his own analysis on which loans are likely to miss payments and default. Both Prosper and Lending Club provide lots of information about the characteristics of the borrower and the default rate on the loans. In theory, all this should be factored into the borrower rating. However, ratings criteria tend to be backward looking rather than forward, providing opportunities for astute investors.  (Learn more about p2p lending returns here)

Here are some interesting findings when looking at the Lendstat’s data:

  • Loans made for the purpose of buying a car or paying down credit card debt have low default rates (sub 3%)
  • Loans related to a business enterprise have a very high default rate (around 10%)
  • Borrowers with monthly incomes above $10,000 have half the default rate of borrowers that make less than $10,000 a month. While this should be accounted for in the rating of the loan, the return to investors to these high income borrowers appear to be about 3%.
  • Surprisingly, employment history (how many years the person has been at their current job) seems to make no difference in terms of loan losses. However, the age of the person  (the number of years the person has had a credit history) does. You’re better off loaning money to a person that had over 5 years of credit history.

With these factors in mind, you might be able to find loans that have lower losses than the average.

This lesson is part of our Free Guide to Investing in Peer to Peer Loans.  To continue to the next lesson go here.

 

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