Micro-lending is one of my 20 passive income streams. I currently have 45 loans on Prosper.com, lent out at an average rate of 19.55%. Even though I’ve had a few delinquencies, my capital has grown 14.5% in the 15 months I’ve been a lender. I’ve learnt a few things about lending and how to protect your principle. While I won’t explain how to lend money on prosper, I will explain how not to lend money!!
Here are the Top Ten Worst reasons to lend money to borrowers:
- You think they’re hot!
- You feel sorry for them.
- They have a picture of a cute kitten or puppy (or supermodel) in their profile.
- They’re 95 and need money for medical bills.
- They’re a Californian real estate investor and are willing to pay 20% interest for a remodel.
- They need $25,000 for college and are willing to 25% interest for it.
- They’re terminally ill and need a new fridge.
- They look like they’re 65 and are smoking in their photograph.
- They make $200,000 a year and need to borrow $5,000.
- They’re buying a business and want borrow the 20% down-payment.
So far I’ve had a really good experience with micro-lending on Prosper. Prosper also has a new tool that automatically calculates the estimated chance of loss based on several criteria like the the borrowers credit and number of delinquencies. That gives you a good idea of what minimum interest to charge to overcome your losses.
If you’re interested in signing up, Prosper is offering a $25 incentive to new lenders.