Can you get a high return with social lending websites?

Social lending is becoming more prominent and people are starting to give it a shot with their spare money since the stock market isn't doing so well right now. While you may read complaints on websites of people only getting 2%-4% it is still possible to get the higher rates of 9%-12%. Following the below steps does not guarantee no defaults in loans, but it will help decrease the chances of loans that go into default.

Here is what I look for when investing in notes on Lending Club.

1. A credit score of 720 or higher. It is ok to venture with borrowers that have a score as low as 680, but know there is more risk coming when you drop below the 720 mark.
2. Length of employment more than 24 months. You need to be able to see that the borrower has good stable job employment. I know no job is guaranteed, but it may help weed out borrowers that are possibly job hoppers or who recently took a job on a short-term contract basis.
3. No delinquencies in the past 24 months. A good pay history is a strong plus for a borrower. It shows that they manage their cash flow well and care about paying all of their bills on time. Sure slip ups happen with some people, but sticking with someone with a clear history is the way to go.
4. Debt-to-income below 25%. A borrower with a DTI of 25% or less shows that they have the ability to take on new debt and still are able to meet their current debt obligations.
5. Length of credit experience. Borrowers with credit lines open for long periods shows that they have experience with handling credit. You want your borrowers to know how to handle debt. I don't have a certain # in years as far as how long they should have before I will lend, but the longer the better. you don't want someone with a year or two of experience taking out a $10k loan. They need to start smaller and build a good payment history. Even with 20 years of experience you still have to watch out for how much of their lines they use. Refer to step 6
6. Revolving line usage of less than 50%. You want to make sure that your borrowers are not maxed out on their available credit lines. Someone with a high utilization is a red flag that the borrower could possible be headed down a road of taking on too much debt and no be able to make future payments.

Here are a few tips to remember when deciding also.  Remember not to be greedy. The people that are complaining about the low returns is because of their default rates and lending to pretty much anyone with a good story as to why they need the money.  Also be VERY cautious of lending for debt consolidations. Debt consolidation within itself is a good thing, but if they payoff credit cards then max them out again next year then they are in deeper then when you helped them a year earlier. There is no way to make sure they cut their credit cards up.  Finally Stay away from student loans. The source of repayment is low if they are going to school then their isn't as much income to pay living expenses. Unsecured loans are last on the list to pay... which is what your loan would be. Lending to someone who has a full time career and paying for a masters degree is ok as long as the they meet all of the other criteria. IE a teacher going back for a masters degree.