Borrowing Archives - Page 2 of 2

Buy a Pool, Get a Loan With Lending Club

March 7, 2011 By Peter Renton 10 Comments

Investors browsing loans on Lending Club in the past couple of weeks may have noticed a few home improvement loans for backyard pools. This may become a growing trend because last month Viking Pools, based in West Virginia, has teamed up with Lending Club to offer financing for their customers buying a pool.

It is an interesting addition to their p2p lending platform and a logical extension from a marketing perspective. By working with retailers who provide financing for their customers Lending Club can ensure a steady flow of qualified borrowers coming to their site. I expect to see more partnerships like this one being announced in the coming year. CommunityLend in Canada has partnered with Autotrader.ca for car loans, I think car financing would be a logical extension for Lending Club as well, although definitely far more competitive than pool loans.

As of this writing there are four loans on Lending Club for pool financing. They range in rates from this three year A grade loan at 7.66% to this five year F grade loan at 19.36%. Would I invest in these kinds of home improvement loans? If they met my other investing criteria I would (neither of these loans met that criteria). What do others think? Is this a good idea for Lending Club to partner with retail companies for major purchases? Be interested to hear your feedback.

Photo courtesy of James Fee

Prosper.com (and P2P Lending) Turns Five Today

February 17, 2011 By Peter Renton Leave a Comment

Peer to peer lending pioneer, Prosper, turns five today. This means that today, peer to peer lending in the US is officially five years old as well. To celebrate Prosper is giving new borrowers who submit a loan today a little gift. Prosper will make your second loan payment for you (up to $300). Here are the details from the press release yesterday:

To celebrate its fifth anniversary, Prosper will run a special one-day promotion for borrowers tomorrow. For all new loans submitted on February 17, 2011, Prosper will cover the borrower’s second month’s payment up to $300.*

“As a thank you to the Prosper community, we’re pleased to offer this promotion to help borrowers save even more money,” said Chris Larsen, CEO and co-founder of Prosper.com. “Without the support of our members and the hard work of my colleagues, Prosper wouldn’t be what it is today.” [Read more…]

Get a Small Business Loan Through P2P Lending

January 19, 2011 By Peter Renton 12 Comments

Of the almost 60,000 loans that have been originated through Lending Club and Prosper in the last five years we know a good portion of them have gone to fund a small business. The official numbers are around 3,500 loans or 6% of that total.

These are 3,500 businesses (there are likely more than that because not everyone states their exact loan purpose) that might otherwise not have been able to get a loan. With the excruciating tight lending standards of the last couple of years most small businesses have been left out in the cold. And with falling home prices, people have not been able to fall back on home equity lines of credit like they did in the past.

Small Business Credit is Almost Non-Existent

Getting credit for a small business, particularly a startup business is never easy. I know the pain of this first hand. As a startup business owner in the early 1990’s I was desperate for money. No bank would lend to a business that had no history and I couldn’t get a personal loan either. So, I resorted to that most convenient (but expensive) of funding tools: the credit card. I remember one month I couldn’t make payroll, so I took out a $7,000 cash advance to tide me over. I don’t remember the interest rate but I am pretty sure it was well over 20%. [Read more…]

Prosper Lowers Rates for Borrowers

January 13, 2011 By Peter Renton 11 Comments

Prosper.com announced today that they have lowered interest rates across the board for all new loans. You can read the official press release here. I received an email from Prosper this morning with the news – here is an excerpt from that email:

In order to keep up the momentum and ensure our rates remain competitive, we are lowering our borrower rates – particularly for the highest quality borrowers where rate competition is most fierce. Attracting great quality borrowers is critical to delivering strong lender returns over time, and these changes will ensure we can do that while continuing to deliver fantastic risk adjusted lender returns.

The higher grade borrowers will get the most benefit but every new borrower will now be paying less for a Prosper loan. The new rates are very low, starting at just 4.99% for a AA rated loan, an amazingly low figure for an unsecured loan. For comparison here are Lending Club’s interest rates; they use a different rating system so we can’t really compare apples to apples but we can say that Lending Club’s interest rates range from 5.42% to 21.59%, a much tighter range than Prosper’s 4.99% to 31.99%. Here is the link to the page with Prosper’s new rates and below is a table that shows the differences between the old and new rates. [Read more…]

P2P Borrower Profile: A Debt Consolidation Loan

January 10, 2011 By Peter Renton 28 Comments

In early 2008 Jillian Kay was drowning in debt. She had multiple credit cards with interest rates of 25% or higher. Then one of her cards increased their rate to over 30% when she missed a payment (it was just a simple oversight on her part). But that was the last straw, she knew something had to be done.

After some research online she found peer to peer lender Prosper and filled out the loan application. It is a pretty simple process and she was able to complete the application quickly. When the loan was funded and she saw the rate was going to be 12.4% she broke down crying. She could really begin the process of digging herself out from underneath all that credit card debt. She used the money immediately to pay off her 30%+ credit card and the remainder went to pay down her other balances. [Read more…]

Now is a Great Time to Borrow Money With Peer to Peer Lending

December 30, 2010 By Peter Renton 7 Comments

Right now is the perfect time to borrow money from a peer to peer lending site such as Prosper or Lending Club. Why? There is less competition between borrowers.

Here are some hard numbers to support this. Let’s start with Lending Club. Normally there are around 450-500 loans available for investors. For example, as reported on Twitter on October 28 there were 527 loans to invest in. Today as of 12:30pm EST there are only 335 loans. Investors looking to invest new money or re-invest their interest earned have fewer choices, which means a better likelihood your loan will be funded.

Prosper is an even better deal right now for borrowers. With their recent change in lending models, there are very few loans available to invest in; as of this writing there were just 16 loans. My guess is that all of these 16 loans will get funded simply because there are so few alternatives for investors. [Read more…]

Revolving Credit Card Debt in America

November 18, 2010 By Peter Renton Leave a Comment

Unlike many people I pay off my credit card in full every month. Yesterday there was this interesting graphic on Credit Sesame that provided great detail on our massive credit card debt. It varies by state but the average adult in the USA has over $5,000 in revolving credit card debt. [Read more…]

It’s hard to go wrong borrowing at a social lending site

November 23, 2008 By Peter Renton Leave a Comment

By Debbie Dragon

A loan can come from all sorts of places: friends, family, or a home equity line if you’re lucky; credit card advances, a payday outlet or the pawn shop if you’re not. But have you considered asking a total stranger for money over the Internet?

Social lending sites are the latest, greatest way to borrow money. By putting people who need cash in direct contact with individuals willing to loan it and cutting out the bank, social lending offers several advantages. The biggest one is a lower interest rate, typically around 10 percent. By comparison, the average interest rate on personal bank loans is currently as high as 16 percent, according to Bankrate.com.

Social loans are not a panacea. The $25,000 cap most sites impose might not be enough to send your kid to college or pay for an addition to your house. And if your credit is really scraping bottom, you’ll have trouble getting a loan at some social lending sites. But others, such as newcomer Loanio.com, cater to poor risks, so you can overcome bad credit while still receiving a reasonable interest rate.

Need more reasons to rely on the kindness of strangers for your next loan? Here they are.

Easy applications

The loan application at a social lending site is simpler than a bank’s and asks for far less personal information. Take Prosper.com, for instance, the most popular mainstream P2P lending site with 820,000 members and $177,000,000 in loans. Creating a listing requires your name, social security number, birth date, driver’s license and state, and the amount you want to borrow. That’s it.

Banks typically also ask for home ownership information, bankruptcy history, mortgage, current bank accounts, list of assets, outstanding loans, employment history, and the list goes on.

True, the information that a P2P site does collect can be more widely viewed than what you give the bank. For instance, anyone who registers as a Prosper lender can peruse data on your current obligations and number of credit accounts. But viewing this data is how lenders decide whether to take a chance on you, and social lending sites do not reveal your actual credit bureau score, aka FICO.

Pimp your credit report

Every time you apply for a loan at the bank, your credit report takes an instant hit in the form of an inquiry. Having too many inquiries in a short period of time can lower your credit score.

A social lending site treats loan applications as (soft queries) that aren’t reported to credit bureaus. Your loan does not show up on your credit report until after it has been funded and you have accepted it as the borrower. This means you can apply for a social loan as many times as it takes to get one and not worry about multiple attempts lowering your credit score.

Social lending sites do report on-time payments as faithfully as banks do, which boosts your credit score over time. (On the flip side, late or missed payments will adversely affect your credit score, too.)

Tend to lag making payments? Social lending sites do charge late fees, but they’re not as high as a bank’s. Typically you’ll owe $15 or 5 percent of the unpaid installment amount – whichever is greater – if you’re 15 days late, and a $15 fee if your automatic bank draft fails altogether.

The big payoff: low interest rates

Why do social lending site loans offer such low interest rates? It’s simple, really.

The interest rate you pay a bank, payday loan outlet or credit card company is decided by several factors: the institution, the prime rate, or both, in combination with your personal credit history. Unfriendly market conditions combined with bad credit can result in paying up to three or four times as much as the amount borrowed. Not good.

By comparison, the interest rate received at a social lending site is usually set by you and your lenders – and most lenders are happy just to beat the 3 to 4 percent interest rate they’re getting at the bank.

The social lending sites with the best borrower rates are Fynanz and GreenNote for students, where the rate can drop as low as 3.5 percent. Got lots of friends and family members willing to take out low-interest CDs? Go to Zopa.com, where pals can donate part of their earnings to pay off your loan. At Zopa it’s actually possible to walk away from a loan owing less than what you borrowed.

Mainstream sites demand higher rates

You’ll pay higher interest rates at the mainstream social lending sites: Lending Club, Prosper and Loanio. But all the sites take credit scores into heavy consideration when deciding on the grade they will assign a loan, so good creds can go a long way toward lowering your rate.

Poor credit risks need not apply at all at the LendingClub. Your FICO score must be at least 640, your debt-to-income ratio less than 30 percent, and you must have no recent delinquencies. If you make the cut, the LendingClub assigns the interest rate starting at 7.88% – ranging up to a whopping 18.86 percent.

In its favor, the LendingClub’s loan origination fees are among the lowest – between .75% and 2% of the loan amount, depending on your credit grade. And if you happen to have a FICO score over 780 and a spotless credit history, go with the LendingClub because it will automatically assign an interest rate in the 7.8 percent to 8 percent range.

Prosper and Loanio friendlier to borrowers

Don’t have perfect credit? You’re better off trying Prosper.com or Loanio, both of which use auction systems that let lenders bid on loans. The greater number of lenders who bid, the lower your interest rate will be.

Anyone can post a profile at Prosper and request a loan. If your profile is compelling and you can convince enough friends and relatives to contribute, you might get your loan funded at a decent rate even with a less-than-stellar credit history. Highly rated borrowers have a shot at Prosper’s lowest average interest rate of just under 8 percent.

But newcomer Loanio is the most borrower friendly of the three mainstream social lending sites because of several ground-breaking new features. If you don’t qualify for a listing by yourself or just want to beef up your credentials, Loanio allows cosigners. Optional verification documents can also enhance your listing by guaranteeing your income, for instance.

Rather than canceling a loan request if it can’t be fully funded within the allotted two weeks, Loanio makes loan money available once you’ve reached a funding of 35 percent or more. Finally, Loanio gives you more time to pay off a loan four or five years compared to just three years for the others.

Loanio’s only drawback is its nonexistent track record; it launched October 1.

Happiness with Prosper

A New Yorker I happen to know intimately recently went the Prosper route. Her less-than-perfect credit score of 639 qualified her for a $2,500 loan from CitiFinancial at an interest rate of 25 percent. Yee-ouch.

At Prosper, she got the loan at 14 percent, a full 11 percent shaved off.

I am (I mean she is) one happy borrower.

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