Browsing Category "Alternative Lending"
7 Nov
2011
Posted in: Alternative Lending
By    Comments Off on Peer-to-Peer Lending

Peer-to-Peer Lending

In a few recent conversations, I eluded to the idea that we, as individuals, have money that we want to invest. Individuals also need loans. For a moment, I imagined a world where people were able to lend money to people, eliminating high interest rate bank loans altogether.If I could secure a loan from an individual for $45,000 at 4% to pay off my second mortgage to the bank, this would lower my payments so that I could continue to afford living in my home. The individual lender would make 4% interest, keeping in mind that you can put your money in a CD and it only returns 2%.

It sounded ridiculous, that anyone would loan you $45,000, but I couldn’t get it out of my mind. Well, it turns out, it’s already happening. I came across this article on peer-to-peer lending and crowdfunding.

Then I thought about one of my clients, who is having a fundraiser in hopes of raising $15,000 to help support the move of their business, and again, I thought, this is not that radical of an idea. Organizations are already implementing these types of lending and fundraising. So, if I’m unable to access government assistance, maybe individual assistance is an option.

The Interest Rate Game

Peer-to-peer lending organizations like Prosper connect individuals who want to invest money and individuals who want to borrow money. It operates on the same principal as traditional lending businesses in that they base interest rates on your credit score. Instead of borrowing from corporations, however, you borrow from people. Rates start at 6.59% and you can borrow up to $25,000.

If I am not able to access the 4.5% interest rates at the banks with my second mortgage ($45,000), or refinance under the HARP program (to be determined — I’m not giving up yet), the back up plan will be to make $10,000 in 3 months, ask a family member for a $10,000 loan at 3 or 4% interest and get the peer-to-peer loan for $25,000 and hope for a lower interest rate than the 8.49% rate I currently have. Even if the rate is the same, I would prefer that the majority of that interest go to a person, instead of the banks who are doing everything in their power not to assist the people who were most affected by their greed that broke the system in the first place.