An Alternative to Traditional Lending

Although the recession had ended many Americans are searching for various ways to get extra money to make ends meet, get out of debt, or buy items they need or want.  Some Americans use risky high interest options such as payday loans or debt consolidation.  Many Americans now have bad credit due to unemployment or due to lack of a savings account.   

This makes it difficult to obtain approval for a loan or credit card.  An alternative to traditional lending is peer to peer lending, social lending or person to person lending. Borrowers and lenders transact business without using a traditional bank over the internet.

Peer to peer loans can be obtained from several companies such as: Prosper, Zopa, Dwolla, Lending Club and Microplace that provides (loans to people in other countries) loans to people in Canada, Australia and New Zealand.

Peer to peer loans offer products similar to banks such as: are real estate loans, personal loans, business loans, debt consolidation, loans to pay off credit card debt and more. The average loan amount approved is $7,000. The lenders make money on loan origination fees instead of interest payments so they constantly need repeat or new users. Americans make 6 million peer to peer loans a year.

Loans are based on collateral, credit score and personal assets. Owning property and having equity in a property can be used as collateral for a loan. Your credit score has to be at least 620. Your chances of approval are also better if you have some money in the bank. If you default on the loan you lose your equity and/or your money in the bank.

There are two main types of lending models used: marketplace and the family or friend model. The marketplace model enables lenders to located borrowers and vice-versa. This model connects borrowers with lenders where the lender that is willing to provide the lowest interest rate wins the borrower's loan. The family and friend model is based on borrowers and lenders who already have a business relationship or business co-workers who formalize a personal loan.

Many of the sites password protect their data and are PCI compliant. If a lender suspects that one of their loans belongs to a person who has committed ID theft, they will work with law enforcement authorities to track down and prosecute anyone who has committed identity theft. However, there are risks to the lenders and borrowers both in terms of loan defaults and fraud.

Is Social Lending the Right Option for You

Due the recession many Americans now have bad credit due to bankruptcies, foreclosures, repossessions, collection accounts and more. Banks no longer look at those with bad credit as potential customers. For those with bad credit it can sometimes be impossible trying to get approved for a loan or line of credit.

If you have bad credit one option is using social lending or peer to peer lending. Social lenders offer products similar to banks such as: personal loans, real estate loans, business loans, student loans, debt consolidation, etc. Borrowers and lenders conduct business without using a traditional bank.

Lenders make money on loan origination fees instead of interest payments so they constantly need repeat or new users. Loans are based on collateral, credit score and personal liquidity. If you own property and have equity it can serve as your collateral for the loan amount you are requesting. You have to have a minimum credit score on average 620 and up but some companies allow lower credit scores. If you default on the loan you lose your equity or personal liquidity and the default may be reported on your credit report.

There are dozens of companies that offer social lending such as: from Prosper, Zopa, Virgin Money, On Deck Capital, Loan Back, Fynanz and Green Note. Prosper offers loans from $1,000 to $25,000. You will be charged a percentage of the amount borrowed (1% -2%) or $25, whichever is greater, depending on your credit score. A minimum credit score of 520 is required for approval. OnDeck Capital offers small business loans.

Fynanz is offers loans to college students. Students are charged a financing rate and a margin rate. Fynanz charges a 1% annual servicing fee for loans. GreenNote offers student loans that do not require a co-signer and charges a one-time fee which is 2% of the loan amount. LoanBack creates a customized promissory note and payment schedule for loans and fees range from $9.95 to $14.95.

Another type of social lending used in many Africans countries is called a "su su" also known as "sou sou", ROSCA (Rotating Savings and Credit Association) or sociedad. "Su su's" are also used in Caribbean, Hispanic and Asian countries. A su-su is a savings method where a group of people pool an equal amount of money for a specific period time. After that time expires, one person in the group gets all the money. The members continue making equal contributions until everyone gets their turn receiving the full lump sum at least once.

Participants in the "su-su" usually consist of close friends and family members who feel obliged to honor the commitment. There are no transaction fees and no credit check is required.

There is a huge risk that members of the "su su" may renege on their obligation, the banker may collect the money and disappear or a member may receive their hand and disappear.

In the past if you trusted a bank or mortgage company and lost, it can’t hurt to put your trust in social lending.

Another Option for Money - Peer to Peer

Due to the recession many Americans are searching for various ways to get extra money to make ends meet, get out of debt, or buy items that they need or want. Many Americans now have bad credit because they got behind on their bills due to sickness, unemployment, reduction in hours or living above their means. Unfortunately because of their bad credit they can no longer go to traditional banks and get a loan or get approved for credit. Another option is peer to peer lending, social lending or person to person lending. Borrowers and lenders transact business without using a traditional bank over the internet.

Peer to peer loans can be obtained from several companies such as: Prosper (formerly Circle One), Zopa, Virgin Money, Lending Club that is available on Facebook, eBay's Microplace that provides (loans to people in other countries and PeerMint that provides loan to people in Canada, Australia and New Zealand.

They offer products similar to banks such as: are real estate loans, personal loans, business loans, debt consolidation, loans to pay off credit card debt and more. The average loan amount approved is $7,000. The lenders make money on loan origination fees instead of interest payments so they constantly need repeat or new users. Americans make 6 million peer to peer loans a year.

Loans are based on collateral, credit score and personal assets. Owning property and having equity in a property can be used as collateral for a loan. Your credit score has to be at least 620. Your chances of approval are also better if you have some money in the bank. If you default on the loan you lose your equity and/or your money in the bank.

There are two main types of lending models used: marketplace and the family or friend model. The marketplace model enables lenders to located borrowers and vice-versa. This model connects borrowers with lenders where the lender that is willing to provide the lowest interest rate wins the borrower's loan. The family and friend model is based on borrowers and lenders who already have a business relationship or business co-workers who formalize a personal loan.

Many of the sites password protect their data and are PCI compliant. If a lender suspects that one of their loans belongs to a person who has committed ID theft, they will work with law enforcement authorities to track down and prosecute anyone who has committed identity theft. However, there are risks to the lenders and borrowers both in terms of loan defaults and fraud.