The rising cost of college tuition and other expenses has plagued students for years. Private bank loans are becoming increasingly hard to come by, and government loans require mountains of paperwork and red tape.
Enter peer-to-peer lending (or P2P lending) websites. Experts warn that it can be a risky undertaking for lenders, but, unlike a bank, it allows borrowers to appeal directly to lenders and explain their situation in as much detail as they want.
Say you needed an extra $5,000 to cover your living expenses at college. Maybe you missed the deadline to apply for federal loans, and the bank didn’t think you were a good candidate for a private loan. You could go online and set up a profile explaining why you need the money and how it will be used.
Lenders on the site might choose to invest in you, plus you can link your Facebook, MySpace, and other profiles to your borrower profile so that friends and family can pitch in, too. The site would serve as the intermediary for your loan, which you would pay back over time with interest.
Here’s an overview of five major P2P lending sites and how they work.
Lending Club
Lending Club is a leading social lending network. Borrowers with good credit can get personal loans at better interest rates than conventional funding sources such as banks and credit cards. There is a streamlined process between the source of funds (lenders) and the borrowers who need those funds.
Borrowers complete a personal loan request online and can instantly view the interest rate they qualify for (it's free to check, but Lending Club does have strict credit standards, such as a minimum FICO score of 640, so there is a chance you won’t qualify). There are no hidden fees, and the interest rate is fixed for the full three-year duration of the loan.
How Does Lending Club Set Interest Rates?
Lending Club assigns each borrowing a credit grade. The first part is based on his or her credit score (the higher your score, the higher your grade). The second part is based on the borrower’s debt-to-income (DTI) ratio. A DTI ranging from 0 to 12.99% results in no adjustment. A DTI of 29% results in a downward adjust of 16 sub-grades. The third adjustment is made based on the amount of the requested loan. Lending Club offers each person a loan guidance limit based on your credit grade. I know, it sounds confusing. But Lending Club offers a short tutorial that shows you exactly how the formula works.
Approved borrowers can then list their loan request on the site, at the interest rate they qualify for. There is a two-week loan listing period during which lenders can review loan listings and decide to fund the borrowers. If a loan is not fully funded at the end of the two-week period, the borrower can decide to accept partial funding or relist the loan for another two-week period. Most loan requests receive full funding.
Lenders get the chance to help someone while making a return on their investment.
Lending Club lets you know exactly what you qualify for and lets lenders know exactly how much they will make. There is no guesswork. If you qualify, this might be the best way to go. And since Lending Club has high standards, you are more likely to get your full loan request filled. The lenders know you have good credit and are more willing to take a chance on you. And, Lending clubs fees for borrowers (.75% to 2%) are some of the lowest you’ll find.
Thanks for sharing such great post, it will surely help many people who want such detailed information about p2p. According to me lower interest rate is very much important and beneficial for borrowers. For more details on p2p refer peer to peer lending
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