Thanks to the Internet, there is a new wave of investing and borrowing. It’s called peer-to-peer lending, and if you don’t know what it is, you should. If you’ve never gotten into the investing world, peer-to-peer lending could be perfect for you.
What is peer-to-peer lending? The idea is simple. Someone needs money, and a few someone elses lend him or her the money they need. That’s it. This technique of lending has been around for thousands of years, but technology has made it much easier, safer, and more profitable.
Peer-to-peer not only makes borrowing and lending easier, but it is also changing the way that we look at personal loans. Over the past several years, banks have made getting a personal loan much more difficult, and rates are getting higher. With these new peer-to-peer sites, banks are no longer the only source for receiving a loan. If an applicant gets turned down for a personal loan, they can now go to one of these sites instead, and sometimes receive better rates.
Because these websites are getting so popular, banks are going to be forced to change the way that they handle their personal loans. Not only are many people finding it easier to get a loan through peer-to-peer sites, but it’s also more convenient. Instead of having to go to a bank during business hours, they can apply for the loan whenever works best for them. Borrowers no longer have to jump through all of the hoops of the traditional bank.
These websites aren’t only changing borrowing, but also investing. Sites like Lending Club, Prosper, and Upstart have emerged in the investing world and given consumers a whole new way to use their money. If you’re looking to diversify your portfolio (or start one) with peer-to-peer investing, there are advantages to each of these companies.
Lending Club is an excellent place to start investing. The website boasts that investors are currently seeing returns of 5% to 9%, impressive right? Obviously, these investments are higher risk than other low-return investments such as CDs.
For investors, the income requirements are going to change a little bit state by state. In most states it’s a minimum of $70,000 per a year, but it could be higher. If you meet the requirements, Lending Club only required $25 to open an account.
Investing in Lending Club is very simple. You can do it one of two ways, manually or automated. You have the ability to both go into the database and handpick that loans you want to invest in, or set investment criteria and then they are selected for you.
If you’re looking to borrow money for a personal loan, Lending Club is easy to navigate and to depend on your credit score; you can get an excellent rate. If you’re looking for a loan, all you have to do go to the site, complete an application, and then you’ll have your credit score pulled to determine your risk. After that, investors will look at your loan applications and decide if they want to invest.
Prosper was the first peer-to-peer lending site to hit the market. Since 2005, when it was established, it has funded over $3 billion in loans. As one of the first ones to use this technique, they have had plenty of time to perfect it.
The investor requirements for Prosper are about the same as Lending Club; you’ll need to have a minimum income of $70,000 a year, depending on which state you live in. With Prosper, choosing notes to invest in is simple. They have a Quick Invest tool which can give you loans based on your investment preferences, so you don’t have to go through all the loans to find the ones you want.
For borrowers, you can apply for a loan anywhere from $2,000 to $35,000 for your personal loan with three or five-year terms. You can get a loan for just about anything, car loans, adoption loans, special occasion loans, family loans, etc. Much like the other sites, Prosper will base your loan rates on your credit score, with AA being the highest and HR being the lowest. With Prosper, your loan rates will be anywhere from 5.32% to 35.97% (yikes). You should also be aware of the additional fees when you take out a loan through Prosper; you’ll also have to pay an origination fee that will vary based on your credit score.
Funding Circle looks to give loans to people who own small businesses. This is important because many banks don’t give small business owners the loans they deserve. So if you’re looking to take out a small business loan or want to invest in small businesses, Funding Circle is the place to go. Because of some of the requirements, Funding Circle isn’t necessarily for just anyone that is just starting to invest.
If you want to borrow on the Funding Circle website, most of the loans are anywhere from $50,000 to $200,000. The interest rates on the loans can be as low as 5.49% all to way to 27.79%. The loans can range anywhere from one-year terms all the way up to five. If you’re looking for a small business loan, then Funding Circle is going to be an excellent option for you. One unique aspect of Funding Circle is their loan specialists. Getting a loan and managing it, can be confusing, that’s why you will be assigned a loan specialist to help you navigate the loan terms after your application is completed.
For investors, you’ll have to have at least $50,000 to open an account. After you open an account, you can invest into a business with as little as $500. Because you’ll be investing in small businesses, the investing portion of Funding Circle is going to look a little different than the other websites.
If these sites continue to gain popularity, we could see loans through banks become a thing of the past. Regardless of your credit score, you should look into one of these sites to see what kind of rates you can get. For both investors and borrowers, they can be an excellent resource, especially if banks have turned you down.