Profitable Lending 101

When you’re looking to invest, taking those first steps may seem a little challenging. That’s why we’ve created a short guide to investing. From how to handle risk, to developing your own diversified portfolio, we’ve covered some key points to help you make good investment choices.

What are the benefits of lending at BitLendingClub?

There are some real benefits to being a peer-to-peer lender, as well, if that is something you’re interested in:

You can earn a good interest rate: Since these loans are between individuals, you are able to make a solid return on your investment. You can enjoy returns that are several percentage points above those for a bank. Lending can deliver potentially higher returns than cash savings in the long run, but with this comes greater risk. Remember, you have the opportunity to choose the level of risk you’re happy with and the loans to invest in and how long you’d like your money tied up for.

It is important to be aware of the risks of investing. Always remember: If an investment looks too good to be true, then it probably is! Is somebody offering to pay 100% interest? If somebody is offering to pay amounts which are substantially higher than the suggested rates, then you should be alarmed.

A wide choice of borrowers to pick up from: Another benefit of lending is that you are able to choose only to invest in the borrowers that match your preferences.

No fees for our lenders:  There is no joining fee nor do we charge a transaction fee so when lenders invest. We do not charge our investors a single fee.

Making a profit is the most important— some might say the only objective of lending. Profit measures your lending success. As part of our risk management strategy, we will offer you a way to increase your returns:

Diversification is the “Golden Rule” of investing

When investing, you cannot totally avoid risk. The easiest way to manage and reduce overall risk of default is to spread your money between several loans. Diversification is most powerful way of spreading your risk and it’s the key to avoiding enormous losses. Diversification means investing in different types of loans, loans with different credit rating, term and different denomination, and may be even spreading your investments across several countries. While investing you need to remember that it takes a lot of good loans to pay for one bad loan. A balanced portfolio can shield you from huge losses. That way, if there are defaults, the hit won’t be as bad.

Achieving diversification involves following a rule: investing small amount in large number of loans. Ideally a lender should look at investing only about $50 on a single borrower at a time.  No matter how tempting it may be to put all your funds in one loan at high interest rate.  No matter how trustworthy you think the borrower is. Risking too much on one investment is a recipe for disaster, even for the sophisticated lender.

Will diversification guarantee that you’ll never lose? Certainly not, but it helps to minimize the amount of risk you face and you’re less exposed to the risk of one investment failing or performing badly. If, for example, you invest 2000 USD in one loan, your portfolio then becomes vulnerable to risk of default. If however, you distribute the same amount among several loans, you will increase your chances of obtaining a good overall return, regardless of the default probability. It’s almost guaranteed that diversification reduces losses in your portfolio and helps to provide a better overall investor experience.

We would like to ask you to take some time and read about important changes that will affect in the next release.

Spread out your risk and increase your returns
In order to boost your profits we would advise you to invest small amounts in many loans. When you make an investment, we will help you diversify and show you the maximum amount you should invest in a loan in order to diversify your risk and have higher returns on your investments. Your limit will be based on the number of your investments and your profit. To ensure diversification of the investment portfolio and reduce risk, the limits will be mandatory. The imposition of lending limits will help you spread out your risk and increase your overall returns. We’ve shown the amount you should invest in a loan in the handy table below:

lending-l

If your profit is not enough and you need to make large investments, you can always request higher lending limit.

Risk-based pricing
After an extensive analysis of the loans within our system, we have come up with suggested rates based on the loan credit rating which will improve lenders’ investing performance. Moreover, borrowers with good credit histories would be rewarded with lower rates. The suggested interest rates are adjusted based on the risk and volatility. Complying with the risk-based pricing rules will help lenders achieve positive returns.

The table below shows the rates for the different credit ratings:

risc-pricing

When will this change become effective?
These changes will be effective from May 27, 2015.

Who will be affected by the changes?
These changes will affect all BitLendingClub users and will be mandatory.

We understand that this is a fairly large change, so we would be happy to hear your feedback on these updates. Let us know your thoughts and we promise to continue improving our system based on your opinion.  We read everything, and your comments, ideas and reports really have a big influence on the further development of our platform.

If you have any questions feel free to contact our support at support@bitlendingclub.com

Best regards,
The BitLendingClub Team

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