Lending Club (LC) is a p2p company that makes it possible for people with extra money to invest their money in families who need money. It truly is an excellent solution for both ends of the spectrum: investors and borrowers.
The actual net annualized return as of June of 2007 for LC investors has actually been 9.67%. Since June of 2007 this yield bests stocks and bonds, but, in the grand scheme of things, a three year time period is a really tiny sample size. The historical returns of stocks have been approximately seven percent and bonds happen to be even less than that. Whether or not the LC average return does not stay this high, it will certainly remain a deserving investment.
Borrowers, alternatively, have the ability to obtain loans having rates as little as 6.78%. The exact rate is based upon your credit score, loan term, loan amount plus credit history. The current national average for a $5,000 36-month loan is 12.26%. There's absolutely no rationale not to check and see if LC can present you with a better rate.
LC is able to offer larger returns for investors together with decreased rates for borrowers given that investing directly with the borrower is an incredibly economical model. Banks and credit card companies experience much greater costs associated with operation. LC takes a percent from both the investors and borrowers.
I've been creating a Lending Club portfolio for over one year. I have not had a single loan enter into default and my personal net annualized return is actually 10.08%. My personal system entails investing in B ranked loans for folks that are striving to consolidate debt. The thought is that the borrowers you are lending funds to will be currently paying debt. Since they're consolidating debt at a more affordable interest rate, it is going to be easier to pay the debt considering the payment per month will be reduced. LC even offers bonuses for new investors.
Learn more about my Lending Club referral at http://www.personalfinancestartup.com/2010/10/21/lending-club-referral/
For individuals seeking a loan for the reasons of debt consolidation, auto loan, student loan, small business loan or any other personal loan, there is a new option of funding through peer to peer lending. This option is relativity new and has become a completely separate industry. It is growing at a fast pace and for many people find it services a need not easy filled by other options.
The idea is based in person to person lending and is much like lending family members or a friend money. The bank involved acts to connect individuals who want to engage in lending or borrowing. For the borrowers, the bank helps find lenders. For the lenders, it does all the due diligence on borrowers such as a credit check and handles collection of payment. The credit checks have the purpose to reduce risk to the individual lenders and assign a max amount the borrower can get and sometimes the interest rate on a loan.
Why do borrowers love peer to peer lending? There are several benefits. The first reason why, it is most commonly used is debt consolidation. It often gets a lower rate than other forms of consolidation and at the term of the loan the debt is completely paid off. The second reason is it is easy to seek funding. If trying to start a business, a business loan is very difficult to get from your local bank and if denied the person has to go bank to bank. With peer to peer loans, lenders often find you. There is a bit of selling your loan in the market place, but it is available for funding to thousands of potential lenders. Third, the interest rate is often lower than other forms of personal loans. Peer to peer loans reported by Lending Club, a peer to peer lending site, have an interest rate starting at 6%. This depends on your credit standing. In comparison, a credit card is usually around 10% to 20% interest and can go as high as 30%. Furthermore, the rate is set and not subject to change like a credit card.
Why do lenders love peer to peer lending? The biggest reason is return. The rate of return, reported by Lending Club, ranges from 6% to 19%. This is extremely high rate of return in any investment. The second reason is actions taken to reduce default by peer to peer websites like Lending Club such as the initial credit screening. They list the default rate at just above 2%. This is low considering these loans are unsecure, meaning there is no collateral backing the loan. To further curb the risk, lenders are not allowed to fund just one loan with their capital. They must spread it out among several loans as to diversify their risk.
There are several other reasons and many could be personal to the individual lender or borrower as to why people love peer to peer lending. Its history is relatively short and for the most part unknown. The trend of growth in peer to peer lending will not slow for sometime as more people discover this alternative method of investment and credit.
Even people that know virtually nothing about finance and Wall Street are talking about the serious impact the subprime mortgage catastrophe has had on our economy. While the incredible number of failed subprime mortgages may have started the economic tumble, the continued financial problems and people's inability to obtain a mortgage or mortgage refinancing of their home is exacerbated by poor credit scores.
To make matters worse, with the horrifying increase in foreclosures across the country, the mortgage, and mortgage refinancing problem for mortgage brokers is just going to grow.
When an individual's credit score goes down, so does their choices for mortgages and mortgage refinancing options. Also, tell your clients to beware of untrustworthy credit repair companies and other scams in the marketplace today promising to "repair bad credit”.
Good credit is an absolute must for a loan originator to be able to put through most reasonable mortgage and mortgage refinancing deals, and with the problem not going away anytime soon, it behooves the loan originator the help their clients with ideas for the credit repair process of improving their credit scores.
This type of credit repair advice is the way that a mortgage broker can turn a potential client into the "real deal" and close their mortgage or mortgage refinancing deal. Also, if done properly, more often than not, the process can take place in a relatively short time span.
Realize that rebuilding an individual's credit score is an ongoing process and requires thoughtful preparation to successfully rebuild his or her credit to an acceptable level to obtain a well structured mortgage or mortgage refinancing product.
Encourage your client to be conservative on any new monthly credit score building budget that they will be able to make the payments and never be late on anything. Caution your client not to structure a program with monthly payments that they cannot comfortably make, because being late on any payments will further reduce their credit score and may make a new mortgage or mortgage refinancing of their home impossible.
If there are extenuating circumstances such as divorce, insist that they review their credit program with their attorney before agreeing to anything.
If your client's credit card companies have not reported or have understated their credit limits on their credit cards, it can hurt their credit score. For this reason, have your client determine if their credit card companies are understating their credit limits on their cards. Often credit limits are reported as lower than they actually are and frequently may not be reported whatsoever.
While we are on the subject of credit cards, make sure that your client has a minimum of three credit cards or other sort of revolving credit. Many people mistakenly believe that if they have credit cards it actually hurts their credit score and because of this, they cancel some or all of their cards. Their credit score can be more harmed and the possibilities of not obtaining new mortgage refinancing on their home or a new mortgage is greater by simply canceling existing credit cards.
Furthermore, if they do not have any credit cards, have them obtain at least three. If they have trouble with getting typical cards like Visa, Master Card, Amex etc, tell them to try a local department store, or a Home Depot or Lowes. Quite often these types of stores are more lenient in granting revolving charge accounts.
Make sure that your client reduces any outstanding credit card balances to under 30% of their credit limit on each of the individual cards. Some people mistakenly think that the 30% figure is based on their overall revolving credit card balance, but this is false. A single card over the 30% balance can nullify the benefit of the effort of having the revolving credit cards in the first place.
If your client has one card over the limit and several others under the limit, if they are limited on cash and cannot pay down the high card, have them see it they can transfer some of the higher card's balance to the lower cards. Have them check first before doing this to see if this type of transfer creates a higher interest rate or any other adverse effects on their credit.
Thus, if an individual has 3 credit cards with a total of $12,000 credit, but two of them have a $2,000 limit and the other has an $8,000 limit, make sure that they keep the $2,000 limit cards under $600 each and the $8,000 card to under $2,400.
Implementing this simple process will cause credit scores to rise, along with the possibility of obtaining that desired mortgage or mortgage refinancing program.
When helping your client to raise their credit scores, make it a point to frequently pull their credit reports for them to determine their status as well as any errors on their reports.
Errors are so common on credit reports that over 75% of all credit reports have a minimum of one or more mistakes on them. Just by their being diligent and carefully insuring that any incorrect reporting information is removed, their credit score will quite often go up incredibly. This is certainly one of the easiest and most effective things that your client can do immediately to improve their score dramatically along with the possibility of them obtaining a new mortgage or mortgage refinancing of their existing mortgage.
If your client's credit has been damaged to the point of having been sent to a collection agency, they probably will not want to immediately pay off the credit card debt. As incredible as it may seem, this situation can actually be more harmful than having credit card debt sent to a collection agency on their credit record.
When one of your clients have been sent to a credit collection agency, the effect on their credit is low after about two years and is virtually wiped out after four years.
Insure that your client receives a written promise from the collection agency for a "letter of deletion" before they do anything toward satisfying the old credit card debt, because without a letter of deletion, they may hurt their credit problem more than help it. Stress to your client that they should not pay anything on the bill until they receive in writing the agreement for the letter of deletion from the collection agency.
Most people trying to improve their credit to obtain a mortgage or mortgage refinancing on their home think that they need to pay off everything as quickly as possible, but this is one case that paying before you obtain the proper documents protecting your situation can actually seriously hurt your credit. People have in reality completely paid off a debt or negotiated a settlement to learn to their dismay that they now have no leverage to get the collection agency to send the letter of deletion.
Finally, if your client does not make paid installments on a car or a boat, have them take out some sort of installment loan with someone like Best Buy or Sears on some needed appliance or with Staples or Office Depot for some business equipment. Credit bureaus look carefully not only at the fact that you have credit, but also the blend of the types of credit that you have. Having just credit cards only is not as advantageous as having credit cards and some sort of installment payment loan.
Be sure that your client watches out for the rates on their new installment loan. Some of these rates can be "out of the roof" and create undo stress on the monthly budget.
Also, unlike the credit cards which you should keep in perpetuity, obviously, revolving credit comes to some point at which the loan is satisfied and the monthly payment ceases. Your client should not buy just for the sake of buying, but if they are trying to improve their credit scores, planning a purchase that they might have paid in full with cash, would be better if they put a substantial amount down in cash and then financed the balance on an installment loan. Financing a smaller amount can actually lower loan interest payments thus lowering the monthly payment; all of which makes your client more likely to improve their credit score and get a new mortgage or mortgage refinancing of their home.
Phillip P Gilliam is 58, currently lives in Florida with his wife and youngest daughter, and is a native of Ohio. He went to Wright State University and has over 37 years experience in marketing, software, business management, and finance. You can contact Phil at http://www.home-mortgage-refinancing-mortgage-company.com
Peer to peer lending is a way to borrow money without involving a financial institution. Also known as "person to person lending," "lending clubs," and "social lending," this type of financing matches investors (as lenders) with other individuals in need of small loans.
What is Peer to Peer Lending?
The original peer to peer lending meant going to Uncle Bob to borrow money, or finding a wealthy business partner to help finance a new opportunity. Although these types of "person to person" home-based borrowing still exist, a whole new arena of private lending has sprung up in recent years. Today, peer to peer lending is widely used to refer to any type of financing that directly connects individual borrowers with individual lenders to arrange small, short-term loans.
Most of the "matchmaking" aspect of peer to peer lending takes place online. There are dozens of reputable websites that connect lenders, with the objective of receiving a nice return on investment. Borrowers have embraced this method of financing as a way of securing a loan without the red tape and high interest rates required by many traditional banks.
How Lending Clubs Operate
For many people, especially those with less than perfect credit, a lending club is an easier way to secure a loan than navigating banking institutions' credit checks or paying the steep interest rates demanded by high-risk lenders. Online peer to peer lending groups require a credit check, but prospective lenders won't be able to see everything in your credit history like a bank would. In some cases, you can increase the likelihood of procuring a loan by offering detailed information about employment, income, and home ownership, but it isn't always required.
That said, your chances of receiving a loan will depend not on the formulas used by conventional banks, but on the individual comfort level and preferences of the lenders using that site – real people, who may or may not decide to lend money to any given applicant.
Social lending websites operate like a financial version of eBay. Prospective borrowers upload their credit information and the amount of their desired loan, and lenders bid on the loan by offering the interest rates they're willing to extend. Some sites process a borrower's information and automatically generate an appropriate interest rate before giving lenders a chance to offer to loan money at that rate.
Advantages and Disadvantages
Thanks to the convenience of peer to peer lending websites, access to a small loan has never been easier. Social lending can be used intelligently, to secure lower rates than might otherwise be possible or to finance investments or opportunities. But in many cases, peer to peer lending can be risky for both borrowers and lenders.
If your credit score is low, interest rates can be as steep as 35% annually, making it difficult, if not impossible, to repay the amount of the original loan plus interest. Even a more modest rate of 10-15% - not unheard of for mid-range credit scores on peer to peer sites – is on the high side relative to conventional loans. If you're interested in securing a lower interest loan to pay off a credit card that’s currently charging around 20% interest, these terms are definitely an improvement, but other borrowers should think twice before agreeing to the escalated rates offered on some peer to peer lending sites.
Social lending groups fill an important niche, allowing borrowers to connect directly with investors without the banking institution acting as a "middle man." However, borrowers should be cautious of the steep interest rates that can come with peer to peer lending.
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