It sounds ludicrous when you first hear it: Loan money to complete strangers online whom you have never met and know very little about. Then expect to be paid back, with interest, over typically three to five years.
But peer-to-peer lending, also known as p2p lending, is becoming very popular.
Why the surge in popularity? Here are seven reasons why more and more people are discovering what a good idea it is to invest in our fellow Americans.
1. You are only lending money to prime borrowers.
One common misconception people have about p2p lending is that the borrowers on these sites must be people with poor credit who can’t get a loan elsewhere. This is simply not the case.
On Lending Club and Prosper, all approved borrowers have good credit, with an average FICO score of around 700 — the minimum FICO is 640 to even be considered for a loan.
Most of these borrowers have many options for a loan but have decided to take out a p2p loan because the interest rates are lower than they would have to pay on a credit card.