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Comment by christiangenco | Hacker News Reader

If the average interest rate is 250% then 70% of them could default and I'd still make money.

An anualized interest rate far over 250% is easy to find there. However, these are short term loans. In order to see a 250% return on a 250% anualized rate, you need to have your money lent out for a year. If each loan lasts a month, then you need to loan to 12 borrowers. If any of them default, you get nothing.

I'm not following the logic. Assuming that I'm not loaning out all the money I have all the time, but rather if I have enough without any repayments to make those 12 loans then defaulting one only loses one, not all. So just don't over-leverage.

An annualize interest rate of 250% for a 1 month term means a 1.08% actual interest rate. If just 8% of your loans default you lose money.

A 70% default rate would mean that you expect lose 68% of your money every month.

Sure, you don't go to 0. But you need a very high repayment rate for short term loans to work; and very difficult to interest your way out of the problem.

The thing to do would be to have a lot of loans running all the time. So start with $10k and loan it out eg $500 at a time, starting with 20 loans. If "default" means you get no money paid back, and each loan pays 20% (not annualized, just 20%), and assuming borrows either payback the loan with proper interest or default and pay nothing back, then breakeven would be about a 17% default rate. I would expect a much higher default rate for lending money to strangers on the internet, but who knows.

It seems the enforcement mechanism here is just reddit accounts. Accounts have to be a few months old with minimum karma. Fail to pay back a loan and your account gets banned and you have to start a new one. Not a huge barrier but not a tiny one either.

You could use the kelley criterion plus an estimate of default risk and loan to several people simultaneously

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