Since February, 2006, there’s a new way for individuals to get small loans in the United States utilizing Person-to-person (P2P) Online Lending on eBay-like websites. On one such site, borrowers post listings requesting an unsecured, three-year loan of up to $25,000 indicating the maximum interest rate they wish to pay. Other people (“lenders”) review and select listings based on the borrower’s credit, debt profile, and group affiliation. Lenders place bids for the amount and rate they’re willing to lend, usually for a piece of the loan (at least $50). When a listing is fully-funded, the site handles all of the tasks needed for payment and collection of the loan. The site has over 1,200 loans listed currently. They range from $5,000 at 4.75% interest for home remodeling (1 bid) to $3,000 at 29% interest to consolidate credit card debt (12 bids).
Eight Suggested Steps to Receiving a P2P Loan
- Examine your other loan options. Shop around for loans from other sources that offer the best interest rates and terms. For example, secured loans generally offer lower interest rates than unsecured loans, but put the property that secured the loan at greater risk.
- Join a group. While this step is optional, it is recommended as many lenders tend to favor loans posted by borrowers who belong to a group. A group can be any collection of people, small or large, with common interests. The top ten groups by member size each have hundreds of members and appear to have collectively generated over a third of the fully-funded loans on this site. Groups also have an interest in not having their borrowers default on loans.
- Retrieve your credit grade. Borrowers provide their annual income so a debt to income (DTI) ratio can be determined and displayed. A credit check is run and a borrower’s credit grade (AA, A, B, C, D, E, High Risk, No Credit) is also determined and displayed. Generally, the combination of a higher credit grade, DTI under 20%, a description that appeals to lenders and lower loan amount improves your chance of getting fully-funded at a lower interest rate. Xem Tai Day
- Research and create your loan listing. After passing an anti-fraud and identity check, borrowers can request unsecured loans from $1,000 to $25,000 at rates they select. It is important to use a high enough starting rate appropriate to your circumstances that will attract lenders to want to bid on your loan. The site shows useful statistics about recent loans, interest rates by grades and loan size that potentially will secure funding. Examine other successful and unsuccessful listings for ideas. Your loan listing is what will inspire lenders to bid against each other to make you a loan. It communicates important details to lenders about you and your loan. Consider uploading pictures and write a lot about the purpose of the loan and how you’ll be able to repay it.
- Get your listing reviewed. Have one or more people review your listing, including possibly your group leader. Would it move, touch or inspire them to lend you money? What would? Does the description contain enough information for a lender to understand why you’re asking for a loan and how the monthly loan payment fits your budget?
- Watch the bidding. You can see the bid history for your listing, which shows the lenders who are bidding, the amounts they’re bidding, and over time will show your interest rate dropping as more bids come in. If there’s insufficient bidding after several days, try to determine why. If this listing doesn’t succeed, you can try a different approach in a subsequent listing.
- Receive your money. If your listing is fully-funded, funds from the winning lenders will be deposited into your bank account a few days later. Sometimes a final identity verification is conducted before funds are released.
- Make your payments and improve your credit rating. Every month, the site will make an automatic withdrawal from your bank account for the amount of your monthly payment and divide that payment among your lenders. If a borrower misses a payment, a group leader is notified before a collection agency. At any time you can pay off all or part your loan early without penalty. Because the site reports all payment activity to a credit bureau, this is a good way for new borrowers to improve their credit history while maintaining their group’s reputation.