When most individuals look for a loan, they traditionally turn to banks in order to gain access to the money they need. Lately though, banks are not giving loans as freely as they once had thanks to the recession woes the nation has been experiencing. Additionally, the process of dealing with a bank for a loan is a long and drawn-out process that takes time and can cost a lot of money in the form of interest charges.
Where to Turn
Outside of the traditional bank lending scenario, social lending networks are seeing an increase in interest from consumers looking for financing. Two of the key reasons people are turning to their peers for monetary loans is because the process is much more straight-forward and especially because they can secure a better interest rate from the social lending networks. While borrowers must still be credit worthy through the social lending process and possess an excellent credit score and history, the advantage over banks is the borrowers can find much lower rates than they can through a bank. Lending Club currently facilitates loans with annual percentage rates as low as 7.93% and Prosper.com offers loans starting at just 7.5% for borrowers with excellent credit. Borrowers that have slightly less perfect credit can still be eligible for lower interest rates through social lending than through other borrowing outlets.
Reasons for Low Rates
Since social lending networks and processes are run entirely online, these networks have a lower overhead than bans and other lenders. The lower expense tab they have, the more of a deal they can offer to qualified borrowers.
Other Advantages and One Drawback
The process of borrowing money through a social lending network are much less complex than using a conventional lender’s process. Most social lending sites will work to find the lowest interest rates for which you are qualified and then automate the repayment process making it simple for all that is involved. The entire application process is simplified in that it is online and only takes a few minutes to complete. The drawback for some borrowers is that social lending sites often limit how much a person could borrow regardless of their credit worthiness. Most cap the amount at $25,000 so borrowers who need access to more cash may not get what they need through social lending.
As the banking industry continues to struggle since the recession problems the country has been experiencing, it will be harder for individuals and businesses to get a loan. Lenders have tightened their lending standards and may be much more inflexible than the social lending community. The communities in social lending are growing stronger every day, and unlike with most banks, those lending money may be more keen to lend based on the borrowers intentions and needs. Since the social lending community offers these advantages in addition to possible the lowest interest rates around, individuals who have not yet explored the social lending arena may want to invest some time and research into such a fast-growing, plausible concept.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.