Higher Risk Lending

Always diversify your loan portfolio

A diversified portfolio can minimize overall default risk to your Prosper lending activity. Making a lot of small loans, rather than a few large loans, spreads default risk across more borrowers, and will lessen the negative impact of any one default on your portfolio's net return. For example, a diversified portfolio makes $50 loans to twenty borrowers rather than making a single $1000 loan to one borrower.

Diversification is especially important to a higher risk portfolio. If you bid on higher risk loans, you should expect defaults. However, if you diversify your portfolio well, you can minimize your losses because a few defaults in a highly-diversified portfolio will have a smaller impact than a few defaults in a non-diversified portfolio.

Diversified portfolio

Non-diversified portfolio

Before you start lending on Prosper, determine how much risk you are comfortable with, and build a portfolio that supports the level of risk you find acceptable.