PEER-TO-PEER LENDING
Traditional lending and borrowing methods have approached
new heights with the accessibility of Peer-to-Peer
Lending (also known as Person-to-Person Lending). There has
been this type of lending going on for centuries, primarily
in ethnic communities and immigration groups. They have long
been operating their own networks of lending between fellow
members. Nowadays, there are peer-to-peer lenders that are
taking advantage of the Internet, bringing their technology
to a much more vast group of people. Companies like
Prosper and the
Lending Club are
two of the more popular online providers of Peer-to-Peer
Lending.
How Does Peer Lending Work?
The principle is relatively straightforward, though the
specifics may differ somewhat between the varying providers
offering these types of loans. A prospective borrower
arranges a statement as to what their needs are and why.
Their income, credit history, and other pertinent
information are submitted to the facilitating party, the
organization that acts as the middle-man for the lenders and
borrowers by processing the monetary transactions. There is
an authentication procedure to determine the legitimacy of
the submitted information.
Once all of the borrower's info is confirmed, their loan
request is posted on the site, as well as the info needed
for lenders to turn out a decision. The info that is listed
publicly does not include any private or personally
identifying information. More specifically, no information
that can be used for stealing one's identity is ever posted
publicly.
Would-be lenders will browse loan requests and select to
offer financing or not. There is a bidding process involved,
during which lenders offer to grant the loan at a particular
interest rate. It is very common for multiple lenders to be
involved with one loan. Meaning, the entire loan amount is
split up between more than one lender, but all offering the
same interest rate.
Peer Lending are usually loans that are short-term loans for
smaller amounts; typically up-to three years for amounts up
to $10,000. The most common loan purposes are for new
business and the consolidation of debt.
The companies that act as the providers make their money via
a fee they charge for the loan processing as well as costs
for tasks that are needed in order to make their programs
work, i.e. listing the loan, registering as a lender. The
actual lenders will earn profit via the interest on the
loans that they are providing. Learn more about
becoming a lender of person-to-person loans. The interest rates associated
with this type of lending are typically higher than
those offered by traditional lending sources but the ability
to get a loan if you are a person with bad credit is more
possible than if you were to apply with your credit union or
bank. Also, peer lending in general is much less sticky than
borrowing from family. Get more info about
family
loans.
10 Reasons Not to Lend to Friends
Want a Loan? Act Responsibly!
Article on Peer Lending in USA Today
Problems with P2P Loans
Being a Wise Borrower
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