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Originally Posted by rowan
I've seen a UK-based site that takes it one step further... your money goes into a pool which is lent to multiple borrowers, so that one or two people defaulting won't leave you with zero.
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They do the same thing, you setup a standing order and tell the system to loan "X" to each borrower up to "Y" that meets A, B and C criteria. Then the system goes and loans out to those who meet the requirements. You can do as little as $50 to each borrow up to the full amount of thier request.
I think the way I would play it is this: (Assuming I had $100K to play with)
Setup a standing order to do $2500 to those with AA ratings up to $50K.
Setup a standing order to do $1500 to those with A ratings up to $20K.
Setup a standing order to do $1000 to those with B ratings up to $20K.
Setup a standing order to do $100 to those with C/D ratings up to $5K.
Setup a standing order to do $50 to those with HR/NC ratings up to $5K.
That way the robot does all the work and the lending is always diversified. Someone that has an AA rating probably isnt going to default on a $2500 loan. Its just not very likely to happen. That would keep the risk spread around with the most of it being in the right department with a little in the high risk dept.
And high risk loans are profitable. Look at all those check cashing stores that loan people $500 to hold a personal check. Those loans cost something like upwards of 600% APY so I have heard, you can affoard alot of defaults when you are raking it in like that.