Is Private Lending For You?
If you do not have outrageously generous, high relatives, you might think that, when it comes time to get a loan to buy or renovate a home, that your bank and credit union are your only supplies of major capital. However, the Internet has revolutionized the way we do business and, now, how we can get loans. While it has been accused of separating people from person-to-person interaction, the Internet has truly started to bring people back together in business.
Prosper.com is currently the United States’ largest person-to-person (P2P) lending company on the Internet. It roles as sort of a loan E-bay, allowing people to bid on loans they wish to invest in, and buyers to get at any rate amount of money they want, for the price they are willing to pay. Prosper allows people to invest as little as $50 per loan they wish to finance. This enables people to spread their money around a wide area, providing for a wider variety of investment.
One of the most rare and powerful aspects of the private lending scene is the ability for borrowers to tell their story. The lending company has no way of knowing whether someone’s request for $10,000 to pay off their sick kid’s medical bills is true. You might be helping sent Little Johnny off to college or remodel the bathroom; then again, you may just be funding someone’s drug habit.
Private lending companies have tried to make fraud a minimal part of the private lending experience. All borrowers and lenders go by a complete credit check and the lending company will send the account to collections for borrowers who default. This may not average that you will get a return on your investment; some people will sail off with money, never to be seen again, only to return to lending companies with another sob story.
If a P2P lending company collects the funds that you invested, you nevertheless may not see a return. The costs of collection agencies can easily take 50% of the debt that the borrower owes you, already if they manage to collect. This issue is starting to be addressed with lending companies, like Zopa.com, are offering investor insurance. They will cover up to $100,000 in investor funds.
For borrowers, private lending can be an excellent way of gaining funds for projects, school, or expenses. In return for lower rates than most credit cards, people can gain thousands of dollars for at any rate purpose they want it for. Most P2P sites don’t encourage people with a bad FICO score to apply for a loan until they’ve improved their score.
Many people with less-than-stellar credit can take advantage of the opportunities of P2P lending with less problems than many have at traditional institutions. One thing that helps is the ability to tell a story – whether it’s to explain that you need to build an additional bedroom for your ailing mother or to pay debts left over from a hospital stay.
P2P lending is a newcomer on the scene, owing its inception to the Internet. It has brought back lending as a personal experience, as lenders can choose borrowers based on their credit score… or based on their stories. If you are a borrower, looking for a way to escape outrageously high credit card interest, you might try looking at one of these companies.