The recession has been over for more than 18 months, yet unemployment remains stubbornly high and those that wish to borrower are still largely having trouble borrowing money at descent interest rates. Those that might own a small business or want to take out money on ac consumer loan will probably find themselves disappointed when trying to get a loan from a bank, but many borrowers have had success with getting loans from peer to peer lending companies.
Peer to Peer lending, which is under the category of social lending, is a way of taking out a loan online from other people. Two of the major sites in the United States are Lending Club. There’s also some niche sites targeted at students looking for student loans such as People Capital and Green Note.
Companies like Prosper and Lending Club have been around for a few years, but have gained notoriety during the last couple of years because of the relative ease of getting a loan through the service compared to a bank. Lending Club has seen significant growth during the last year. The company had monthly loan originations of $2.15 million during February of 2009 and hit more than $10 million during May 2010.
The primary advantage of using a peer to peer lending service to take out a loan is the interest rate that you’ll pay. The average borrower gets a loan at about 9%, much better than credit cards and unsecured loans which can easily be above 20%. Investors benefit by having an investment which provides some diversity to stocks, bonds and real estate. Lending Club boasts that its investors have earned a 9.64% net annualized return since 2007.
If you’re a borrower, know that you’ll still need to have a credit score of at least 640 (or 660 for Lending Club) to get a loan. You’ll also need to be able to have an income and some level of employment history. There’s also some fees involved, as you would pay with any bank. Peer to peer lending companies are in the business to make money, so borrowers can expect to pay an origination fee of 1-4%
