I was introduced to Lending in 1997 when I joined the SuperSolutions Corp in Minneapolis, where I started working with our First client a sub-prime Auto Lending company out of Indianapolis to build a new Loan Origination System. The first two concepts I learnt during the requirement gathering session was to evaluate the credit risk and correctly pricing it. The risk was evaluated manually based on multiple factors like income, debt, length of credit history, home ownership etc. and then consolidated as a One Factor Score (Credit Score). Based on the borrower’s credit score, loan pricing (interest) is assigned. Higher credit risks will lead to higher interest rates. Back then I was focused on just developing the software. But now I implement these concepts to make money by lending money to people worldwide.
Community based money lending is still very popular back in my home country India. . A community broker would manage everything between the lending party and the borrower. With the help of a community broker called Dalal in Hindi people invested extra cash by lending money to small business. It is very difficult for small business to get loans from Banks due to lack of documentation. The Credit Risk and price is evaluated based on person reputation in the community.
I have always seen the potential in lending and was fascinated with it, but I never got a chance till I came across the peer-to-peer lending and opened an account with the Lending Club (https://www.lendingclub.com/) in 2015. There are several companies similar to Lending Club across the world and I will publish a consolidated list in my future articles. These companies don’t evaluate the Credit risk based on the borrower’s reputation in the community but credit risk is evaluated based on the data gathered on several parameters. Companies like The Lending Club play the role of broker between the lending party and the borrower charging a nominal fees for managing the complete transaction. They also provide lot of tools to educate investors on choosing the strategy in the Investment Education Center (https://www.lendingclub.com/investing/investor-education) . I will cover what I have learned and some of my investment strategies and parameters in my future articles.
One could really create a profitable Lending Company using these tools and correct strategy. To give you a glimpse of the personal portfolio I created over 4 years based on applying some of the strategies with periodic consistent investment look at the two figures. I have created a loan portfolios of about 2700+ notes with average rate of interest ranging from 7% to 24%.
About the Author:
Vinay Bhatia is an accomplished Senior Executive and Consultant with more than 20 years of success across the financial services industry. His broad areas of expertise include product development, Agile process optimization, Lending, Line of Credit and consumer loans.