I often get a question – what are the best criteria for investing? Historically, D-rated loans generate the highest returns, despite the most frequent defaults.
I decided to delve into the historical statistics and look for the settings that have the biggest impact on loan repayment.
TOP 12 Lending Criteria
12th place. Refinancing
Despite the fact that refinancing loans are designed to lower the payment and save money, they have an 18% higher probability (14.6% vs. 12.32% of the portfolio average) to be more than 90 days late.
11th place. Gender
This is a general trend – men are 22% more likely to be over 90 days late than the overall portfolio average. There is no unified explanation for this phenomenon, but there is an assumption that women are more likely to ask their relatives for help to cover late loans.
10th place. Real Estate Ownership
Borrowers who do not own their real estate are 25% more likely to be more than 90 days in arrears. The more assets the borrower has, the greater the chances that the loan will be repaid on time.
9th place. 3 and more children
Large families face significant costs associated with raising children and are 30% more likely to be late for more than 90 days.
8 vieta. Marital Status
Single borrowers are 32% more likely to be over 90 days late. This can be associated with the help of the partner in overcoming financial difficulties.
7th place. Income Size
Borrowers with an income of up to 500 Eur per month are 32% more likely to be late for more than 90 days. This is due to the smaller amount of available funds left after covering the living expenses. Oddly enough, customers earning over 3.500 EUR per month have a 36% higher probability of becoming insolvent. However, the sample of these customers is very small and the probability calculation can be significantly influenced by chance.
6th place. Age
Customers who are 46 years of age or older have a 35% lower probability of becoming insolvent. This can be explained by the accumulated experience in assessing the financial status of oneself and one’s family, as well as a longer working experience.
5th place. Loan Amount
Small loans are financed instantly. And for a good reason – loans up to 500 Eur have a 36% lower probability of late more than 90 days compared to the entire portfolio. The smaller the loan, the easier it is to service it.
4th place. Returning Customer
Our returning customers are 37% less likely to be late for more than 90 days. The better we know the borrower – the more accurately we estimate the probability of repaying the loan on time.
3rd place. Education
Borrowers with a higher education degree are 42% less likely to be more than 90 days late. Quality education opens more doors in the job market and it helps borrowers to manage their personal finance better.
2nd. Loan Term
Short term loans are another popular choice for our investors. Consumer loans up to 12 months have a 52% lower probability of being overdue by more than 90 days. On the other hand, the longer the term of the loans, the longer the period you fix the interest rates that tend to decrease in the long-term.
1 vieta. Work Experience
Borrowers with more than 10 years at their current workplace are 61% less likely to be late for more than 90 days. The longer the work experience – the more financial stability.
Can it get any better?
Do combinations of the best criteria perform even better? You will find out in October. :)