As banks tighten their lending requirements many borrowers find they are unable to get personal loans for things like buying a car, vacations, starting a business or debt consolidation. If you’re been turned down by your bank, you may feel that there are no other options.
Peer to peer lenders are there to help borrowers get the money they need, while allowing other individuals to invest in lending the money. You’re borrowing money from your peers, not the banks. While this may be a good idea for some, how do you know its right for you?
Before you even consider this type of loan there’s a few things you should know:
1. You need decent credit. Prosper and Lending Club, the only peer-to-peer lenders currently available, both require credit scores of around 650.
2. You may be paying a high interest rate for this loan. The interest rates for these loans range from 5% to 35%. So if you are using this to pay down your debts, it may not make sense if the interest rate is higher.
3. You may not get the money you need. Since the loan is made from invested money, if not enough people invest you won’t get the money you want. In some cases if you don’t get a minimum amount of the loan, you won’t get anything. The money will be returned to the investors.
4. You can have your friends and family invest. They may not be able to give you the money, but maybe they can invest in your cause. Especially if it’s for a business, debt consolidation or to pay for your child’s education, they may want to invest in these things.
5. You can reduce your interest rates by maintaining a good loan history. As a return customer, you will get a lower interest rate on your loan. So, keeping up with your payments will ensure that when you need to borrow again you’ll be paying less.
As you can see there are a few things that you need to look at before you apply for a peer to peer loan. Read testimonials, look for a few lending club and prosper review sites. Read what other people say about their experiences. Gather all of your information and see if a peer to peer loan is the right choice for you.