The following is a post by MPFJ staff writer, Toi Williams, who is a professional personal finance blogger of Fine Tuned Finances. She has backgrounds in personal finance, sales, and real estate.
Peer to peer lending is an alternate funding method that is becoming increasingly popular across the United States.
This lending method is funded by individual investors willing to provide money for loans in return for an attractive interest rate on the money they invest in the loans. Peer to peer loans may be a viable alternative if you are unable to obtain a loan from a traditional bank or lender. Once obtained, the funds can be used for anything the borrower desires, including paying off high interest debt, purchasing a vehicle, or starting a business.
Peer to peer loans are often cheaper for borrowers than traditional loans. These loans allow borrowers to bypass the banks, which often have higher fees, higher interest rates, and lower loan limits for their loans. Investors earn a higher return on their money than they would using many of the saving options available at traditional banks, supplying borrowers with a large pool of investors willing to fund their loans. This keeps interest rates reasonable and payments low for borrowers.
Peer To Peer Lending Companies
Prosper.com
Prosper.com was one of the first players in the peer to peer lending industry. All of the loans made through the company are fixed rate loans with terms lasting either three or five years. Prosper’s website advertises a 6.73 percent starting APR for the best borrowers, meaning the borrowers with the highest credit scores. According to the website of the Better Business Bureau, Prosper has recently received an A+ rating from the rating agency.
LendingClub.com
LendingClub.com was founded shortly after Prosper.com. The company has helped thousands of borrowers secure millions of dollars in loans from private investors over the years. During Lending Club’s first year of operation, it facilitated more than $3.5 million in loans. That figure has since grown to $3.4 billion annually. LendingClub offers personal loan amounts up to $35,000 and interest rates as low as 6.78 percent on loans with terms of three or five years.
FundingCircle.com
FundingCircle.com is another popular peer to peer lending business. The company specializes in small business loans to finance expansions, inventory purchases, marketing launches, and the hiring of new employees. The company offers loans up to $500,000 at interest rates of little more than 9 percent for borrowers with excellent credit. The term of the loan can be three, four, or five years.
Obtaining A Peer To Peer Loan
Securing a peer to peer loan is easier than you may think. The first step in the application process is providing your personal information to the peer to peer lending company so a credit check can be performed. Most companies offering peer to peer loans require applicants to have a credit score of at least 600. The minimum credit score for both Lending Club and Prosper is 640. Funding Circle uses a complicated calculation process designed to determine the company’s ability to repay the requested loan.
Before applying for a peer to peer loan, make sure that your credit score is as high as possible so you will get the best rate for your loan. Obtain your credit report and go over it with a fine toothed comb for any errors that could be bringing down your credit score. You can obtain a free copy of your credit report from each of the three major credit bureaus annually from www.annualcreditreport.com.
Correcting errors on your credit report can increase your credit score by a significant amount. These errors could include someone else’s information combined with your own, missed payment entries for payments you know were made on time, or accounts in your name that you did not open. If any errors are found, you should alert the credit bureau that issued the report immediately to get the process started for removing that information from your credit report.
You will also be asked to disclose your debt to income ratio so the underwriters can determine your ability to repay the loan you are requesting, so it is important to reduce your debt to income ratio as much as you can before applying for the loan. After your personal and information has been reviewed, your request will be assigned a score based on your perceived credit-worthiness, essentially a credit score for the website. This score is typically displayed in the form of a letter grade, with AA or A1 ratings equaling the best ratings down to E or G1 ratings for riskier borrowers. The rating you receive determines the interest rate that you will be charged for the loan and the interest rate that the lenders will receive for funding your loan.
In order to obtain the loan, you must provide the peer to peer lending company with a valid bank account number. The requested funds will be deposited into this bank account and the payments for the loan will be automatically withdrawn from this account on the payment due date each month. Your loan may be completely funded by a single lender or divided into smaller portions by multiple lenders. Regardless of the number of people that fund your loan, you will make a single payment to the peer to peer lending company that facilitated the loan. That payment is then divided into the accounts of the investors that funded your loan.
Final Tips
In order to ensure that the peer to peer loan process goes as smoothly as possible, fill out the requested information completely and honestly. The information you provide will be scrutinized and any potential errors can hold up the process or result in your application being rejected. Depending on the funding process, it could take a couple days or a couple weeks for your loan to be entirely funded. Make sure that you read all of the terms and conditions associated with the loan so you will know how much you will pay in fees and interest as well as when the monthly payments will be taken out of your bank account.
How about you all? Have you obtained a peer to peer loan from one of these companies?
Share your experiences by commenting below!
***Photo courtesy of http://pixabay.com/en/hand-finger-thumb-high-positive-105725/
Everything You Need To Know To Get A Peer To Peer Loan is a post from: My Personal Finance Journey
