Peer to Peer Lending Says Yes to the Loan, No to the Bank
The innovation of Peer to Peer Lending (also known as person to person lending) is breathing new life into the flatline world of financial prospects for people who need to borrow money but don’t even want to enter a bank because they don’t feel welcome. Peer to Peer lending platforms, whether borrowing money from strangers who are investing in personal loans or through a lending service that allows you to construct a loan between family members and friends, are an option to apply for secured and unsecured loans that cut the bank out of the equation. With peer to peer lending, the banks don’t have a chance to make you feel unwelcome; you’re not giving banks the option to say no. You’re taking your business elsewhere.
Young people moving into the adult world aren’t limited by the same financial boundaries that the previous generations recognized. True, the recession of 2008 hit everyone hard, and college students entering the job market carrying thousands of dollars in debt might feel that all the doors are closed. Second-career adults recovering from job lay-offs sometimes feel that they don’t have the same standing that they once had. In today’s world of finances, a lot of people feel like going into a bank to ask for a loan is like going into the principal’s office; you’re going to get bad news and no one is going to believe you when you tell them that you’re reliable and honest and a good risk for a loan. Which explains why people who fear that they’ll get the cold shoulder from banks are turning to peer to peer lending.
Why is peer to peer lending so user friendly for the borrower? For one thing, it’s less costly. Banks are buildings; that mean there’s real estate costs; utilities; human resources; security systems; furniture. Those are items that ultimately are paid for by bank customers. Overhead isn’t cheap. Peer to peer lending takes place on the Internet, not in a corner office.
The peer to peer lending service provides similar functions as a bank, including a website and customer service; verification of regulatory compliance; communicating with credit bureaus, deducting monthly payments from your account and sending the money to the lender.
The top peer to peer lending websites 2014 are Prosper and Lending Club. Lending Club came to the rescue after the 2008 recession. Just one year after its launch, Lending Club was giving riskier borrowers a chance when banks wouldn’t. The online credit application that you fill out doesn’t negatively affect your credit score because it counts as a “soft” inquiry. To qualify for a Lending Club loan, your minimum score needs to be 660; for Prosper.com, it needs to be 640. For the latest information on which states allow peer to peer crowdfunding, check here. If you’re living in North Dakota, Iowa, or Maine, Prosper isn’t going to be able to provide financial prospects. Likewise, if you’re living in Maine, Iowa, Idaho, North Dakota or Nebraska, investing money peer to peer isn’t going to happen. But it’s a big country, leaving plenty of people in the remaining states who want to invest peer to peer and make your loan happen.
Backers investing in personal loans are part of a dynamic commercial apparatus that approves personal loans ranging from $1,000-$35,000. Want to start a small business? The Lending Club loans start at $15,000 and are capped at $100,000; for Prosper, all loans, whether personal or business, start at $2,000 and go up to $35,000. The appeal of borrowing money peer to peer is the lower interest rates: seven percent for borrowers with stand-out credit. For the typical borrower burdened with debt that comes with a 20.7% interest rate, peer-to-peer lending is a smart way to consolidate debt and have affordable payments.
The loan payment structure is term-based—either three- or five-year terms—with monthly payments. Eyal Bujvaj, the founder of www.SMT-Agency.com, a site that acts as a mentor for peer to peer borrowers and investors, explains that borrowers like the way the fixed-term repayment format instills discipline into their financial habits. After three years, or five years, the debt is paid off.
As is the case with any borrowing, whether it’s from a bank or whether you’re going to borrow peer to peer, it’s important to play by the rules. Pay on time—payments that are made more than 15 days after they’re due will be charged a fee. Online payments are the economical way to go; there’s a $15 processing fee if you pay by check each month. If you don’t make your payments, your credit will pay the price.
Peer to peer lending is designed to provide loan opportunities for people who might not be able to finance a loan through a bank. It’s also designed to provide investment opportunities for financial backers who aren’t bankers. The beauty of peer to peer lending is that it provides opportunities for an entirely new commercial demographic: the ordinary people who are opening the doors of commercial prospects and rewriting the rules for the business world of tomorrow.[toptable type="Peer to Peer Lending" num="6" orderby='_as_bonusamount' sort='desc']