One method of borrowing money that has grown in importance over the past few years is peer to peer lending, a way for private lenders (usually individuals) to lend money to people. As you might guess, the rate consumers pay for these types of loans is higher than what a bank might charge, but the qualification threshold is lower, thereby opening an entire spectrum of financing that wasn’t available until recently.
Peer to Peer Lending
Several internet sites have sprung up to oversee peer to peer lending, the two most popular of them being Prosper.com and LendingClub.com. Right now, Prosper isn’t taking on new borrowers as they respond to a Securities & Exchange Commission (SEC) investigation about their practices. Prosper hasn’t done anything wrong, but it is believed that some banks have made the complaint in a bid to curtail the peer lender’s effectiveness.
The way that peer lending works is simple. Usually, borrowers fill out an application that shows potential lenders their current debt to income ratio, credit score and a description of why they want a loan. Lenders can choose to fund the entire loan or they can fund a portion of the amount requested. Together with other lenders, a loan can be created that meets the needs of the borrower.
Loans Awarded and Funds Disbursed
Once a loan has been awarded, funds are deposited in the borrowers bank account. Then, at prescribed intervals, the borrower will begin to pay back the loan through the intermediary peer to peer lending company. The company then reimburses the lenders.
As you might guess, a fee is involved, usually one percent of the transaction price. This means that if your loan rate is 8.95%, you’ll pay an extra 1% on top of that rate to get the loan.
Not as Easy as You May Think
Borrowing money via peer to peer lending isn’t as easy as you may think that it is. Lenders are quite picky on who will get their money and are looking for borrowers with a good credit record. Now that the lending market has tightened up considerably, lots of borrowers with good credit are checking these sites out too. This means that the competition is tougher, so your credit history should be a good one.
Finally, there have been reports of a spike in loan defaults as the economy sours which is all the more reason why you should offer a compelling case for why anyone should lend money to you.
Adv. — Does your college student need a credit card? Shop around to find and compare the best offers, deals that can benefit your student and help them as needed. Please visit SayStudent.com for the information you need to find the credit card that is right for you adult child.
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