Thursday, February 25, 2010

Peer to peer lending. What is it?

There has been a lot of buzz across the financial blogosphere lately about peer-to-peer lending. After looking into it, I found a number of financial blogs that I trust giving it their “thumbs up.” So I wanted to know more. What is it? Why would anyone be interested?

With the crises that the banking industry has experienced lately along with the shady methodologies that credit cards have been using to get more and more of your money, fewer and fewer people want to deal with them.

We’re in the number who are tired of the financial chaos and feeling ripped off by credit card companies when we have been good customers (both in giving them our money as well as being reliable in payments). What other options were there?

Peer to peer lending is one of those options.

What is peer to peer lending?
It’s just what it sounds like. Regular people offer their money up to borrow. Regular people apply for a loan. The rates are lower than many bank loans and certainly lower than credit card rates. So that is definitely a plus for the borrower. The rates are higher than CDs, savings accounts and other short-term investment options, so that is a huge plus for the lender. Everyone wins!

Lending Club is one of the prominent names in this business of putting lenders and borrowers in touch with one another. And the site is growing by leaps and bounds as more people realize the benefits to participating in this community of people who are all personally involved in getting the most for their money without abusing the other party.

Only people with good credit history are allowed, so this is definitely not a shady place for people who have no where else to go. This is for people who are honest, dependable, and trustworthy and can prove it with their track record.

Borrowers:
So do you have a credit card with an outrageous balance that you want to get rid of within three years? You can consolidate your cards here with a loan (up to $25,000) at a rate lower than you will be able to find with another card. And you won’t be a slave to a bank.

Do you want to take out a private student loan? These guys might can help you. Practically any legitimate reason for taking out a loan can be done with these guys.

Lenders:
What about the lenders? Well, they can invest as little as $25 and the lender choose the level of risk they are willing to take. You can invest all of your money into one loan, you can appropriate your funds into as many different borrowers as you can stretch your money to diversify your portfolio. You can choose higher risk borrowers for larger interest collection or more stable borrowers for safety. It’s all about how you want to invest, but with returns greater than any other short-term method of investment. In fact, they boast an average 9.6% return on your money. Try that with a bank.

So if you are interested in getting more for your money as an investor, or getting a loan that you are willing to pay off in 3 years or less for an interest rate lower than most lenders can offer you, Lending Club might be worth a few minutes of your time. The best part to me? Knowing that there are real people behind the money and not big-business bankers who are taking all-expense paid vacations on government bail-out money.

Have I used them?
No. But I seriously considered it for loan consolidations before I fully got on board with Dave Ramsey. I have realized that we will be able to pay off all of our credit card debt without a consolidation in about 12 months. So although I could go through Lending Club and get a better rate than my cards offer for that 12 months, I am just going to stay where I am and stick it to the banks by paying off the cards and closing the accounts in an insanely quick amount of time.

However, I am considering using this as a short-term investment option once we are free to make those decisions with our money (aka—after our debts are gone and we have a good savings padding). I like what they do (which is why I am referring you to them now) and would like to have a part in it once we get to use our money the way WE want to.

So go give it a look-see and let me know what you think.

The links and banners on this article and on my sidebar are paid affiliate links/banners. Regardless of the pay, I firmly believe in Lending Club and its methods (or I would not be affiliated with them). All of the above opinions above are my own and are not affected by the affiliation in any way.

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