BTCJam Introduces Risk Based Pricing (Interest Rates Set Automatically by Credit Score)

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BTCJam is changing the way interest rates are set in order to improve the experience for both borrowers and investors. Starting today, BTCJam will set the borrower’s interest rate automatically based upon their credit score. The higher the borrower’s credit score, the lower their interest rate.

Automatically calculating the interest rate based upon credit scoring is known as risk-based pricing and is a well known and time proven methodology within the financial services industry. Interest rates are set by a combination of the borrower’s credit rating (using BTCJam’s proprietary credit rating system) and the duration of the loan. Borrowers who are less likely to default will receive lower interest rates.  Since BTCJam has all of the information about the borrowers, we are in a better position to determine the likelihood of the borrower paying back the loan and will adjust the interest rate accordingly. Risk-based pricing makes investing easier because when a lender invests in an A-rated loan, they know that the borrower will be paying an A-level interest rate.

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Interest rates are set by a combination of the borrower’s credit rating and the duration of the loan. Borrowers who are less likely to default will receive lower interest rates.

When borrowers are allowed to set their own interest rates, it is far too tempting for them to set a low interest rate and see if investors will accept lower returns.  While a borrower who receives a very low interest rate usually pays back their loan, it does not provide the investor any cushion against possible defaults.  With risk-based pricing, the interest rates for all loans will be standardized, ensuring that investors are able to offset possible losses from defaults.

We are confident that this change will improve BTCJam and allow us to continue to maintain the highest repayment rates in peer-to-peer lending (as high as 98% for A-rated borrowers), as well as increase overall returns to investors.

Check out the changes and start investing with BTCJam.  Get a loan with a reasonable rate with BTCJam.

Risk Based Pricing (automatic interest rates) Q&A

Q: What will happen to loans that were created before the change to Risk Based Pricing?

A: Loans created prior to the adoption of Risk Based Pricing (automatic interest rates) will continue until they have either been funded or have expired. BTCJam will identify the old loans and will separate them so they will be only be accessible using filters.

Q: The system sets a rate that is too high for me and I won’t be able to repay it. What should I do?

A: If the interest rate on your loan is too high you should verify more documents and add more information to your profile. By verifying more information, you will increase your credit score and receive a lower interest rate.

Q: Do I still have the option of doing a loan tied to a local currency?

A: Yes you will still be able to choose between a Bitcoin loan and a loan tied to local currencies. Learn more about currency types.

Q: Why did BTCJam choose to change the way that interest rates are determined?

A: BTCJam changed to risk-based pricing for a number of reasons. One reason being investor and borrower security. By setting the interest rates automatically it simplifies the risk assessment for both borrowers and lenders. Learn more about risk-based pricing.

Q: Will there be a set standard for interest rates based upon credit rating? For example, will all C rated borrowers have loans set at a standard 5.5% interest regardless of profile completeness?

A: Yes, every credit score grade will now come with a set interest rate that is the same for all borrowers that have the same credit score. However, rates will change also according to the loan term. That means, a C loan for 30 days will have lower rates than a 1 year loan for a C rated  borrower.

Q: Can I pay more than the recommended interest rate?

A: No. The interest rates are now automatically linked to your credit rating.  This change protects our investors from loans that are “too good to be true” and that the borrower never intends to repay.  We took into consideration both borrowers and investors when making this change.

20 thoughts on “BTCJam Introduces Risk Based Pricing (Interest Rates Set Automatically by Credit Score)

  1. Why not leave this to the market? Think I prefer the old situation where btcjam flagged if interested rate were lower than the ‘recommended rate’. This was already a perfect tool to assess the interest rate.

    I don’t see the added value of overruling/auto-set the interest rates. Please add some further explanation. What problem are you trying to solve?

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  2. I have a B+ credit score and it always suggests a 200 percent interest rate for me. I mainly use BTCjam for investing, this new system is going to make investing worse than it already is.

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  3. This rule intended to cut off scammers I guess, but imho stronger verification process can do it better. I know increasing verification more expensive than automated rules, but it need to do for sure.

    Time will show. Only fools allows to get down their own business.
    Probably it start to rise more faster 🙂

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  4. I agree, let the market decide and flag loans as you have been doing. Also, the 4% fee that that BTCJam is pretty high as well which eats into both the investor and the borrow. I would think a 1-2% fee would be more reasonable.

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  5. I agree, there are legal consequences for BTCjam because it covers an essential part of the business process, which now is not between two parties. Before BTCjam was just a tool, now is an actor.

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  6. edson, este nao e o lugar pra solicitar emprestimo. voce tem que se cadastrar na pagina principal e depois de aprovada a documentacao voce vai poder publicitar seu “listing”

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  7. So apparently temptation will grow to lend to people with higher risk who are more likely to default xD
    Yet people who never wanted to repay did usually set a high interest rate anyway to gather the money.
    I don’t see a very big change but at least there will be some default numbers to make things a bit easier.

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  8. Very exciting development.

    What happens when someone can’t get their loan filled at their current credit score?

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  9. “known as risk-based pricing and is a well known and time proven methodology within the financial services industry.”

    You understand that is the industry we are trying to leave, right? Not really convincing for a cutting edge service using new technology to disrupt and displace the previous financial system to then say “hey we adopted their methods, and you can trust them because they have a long history of working in that system you don’t like”

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  10. This measure is ridiculous, the btcjam ranking is not the only factor one looks to invest or not depending on the rate. People will start not validating theirs account in order to be able to pay more interest and capture investors…
    What is someone need the money really fast, using a biggest interest, is a good way to accomplish that. I can think about tons of examples.
    At least make it a range… or a maxim of tolerance.

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  11. Are you saying won’t be possible to define its own interest rate? If yes, bad move. If this is just a suggestion, OK.

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  12. “I’m concerned the new system will make it very hard for high-risk borrowers to get any lines of credit. I don’t think most lenders will say “Oh, it’s the best rate I can get, I guess I’ll take this high risk/ moderate return opportunity.”

    Also, part of the beauty of BTCjam was that lenders could do their own risk assessment and determine their tolerance. Now, we’re forced to accept the site’s assessment as gospel- which might also make it hard for borrowers in some cases. (i.e. A borrower who the site determines to be low risk is automatically assigned a low rate, while the lending community believes the loan to be higher risk, and refuses to lend at the low rate)” per Bostcoin

    I think it was wise for BTCJam to offer a suggested rate, but not to choose the rate for us. In my opinion it takes away a big element of the fun and challenge.

    Give people the information and tools to make more informed decisions, but please let us freedom loving, bitcoin fanatic, libertarians make our own decisions. lol

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  13. This is not a change that I like. This may offer some small protection for outrageously bad borrower/lender combinations, but it does not suit the needs of the site at large. Finding ways of enforcing the payment process would go much further than this. The actual troubles are from previously reliable “A” rated borrowers who just stop paying, not some crook who makes a “too good to be true” loan. Things that would make sense are starting collection sooner or imposing real penalties for late payments.

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  14. Pingback: BTCJam e genéricos: não use | Yeppuda Productions

  15. I’m not a fan of the new locked rates. I tried to open a tied 50 BTC loan today for 365 and my rate was 45%+. I have a substantial number of coins invested and I’m all green with a B+ rating. Maybe you should allow your B and up borrowers to calculate their own %s? I do know I won’t take out another loan under these circumstances. 45% is offensive…….. All of that said, I do like the movement going on behind the scenes as JAM has the potential to be a valuable company down the road.

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