Person-To-Person Loans – You Can Earn Better Returns

davidguide — Mon, 12 Oct 2009 18:39:11 +0000

Person-to-Person lending (also known as Peer-to-Peer or P2P) is fast becoming an attractive way for borrowers and lenders to connect directly. It is like the EBay of the banking world. In the past, you would deposit your funds at the bank and depending on the amount and term, the bank would pay you interest. Current certificate of deposit rates range from 3.50% to 5.00% APY. Basically, the bank then makes loans with your funds and their income is based on the spread between your rate and the loan rate. Well, why let the bank have all of the fun? Now, you can lend direct and earn more interest.

There are three main services: Prosper.com, LendingClub.com, and Zopa.com. Prosper gives you plenty of details such as the credit score, Debt-to-income ratio, etc., so you can make informed lending decisions. Prosper.com allows the lender to seek additional details about the borrower, although the borrower doesn’t have to respond. Of course, then the lender doesn’t have to lend to them. Many lenders spread out their funds in $50 to $100 increments to minimize overall risk. Looking at data from Prosper (6/1/06 to 4/21/08), average rate of return for AA borrowers is 6.64%. Some people will sprinkle in some lower quality loans to try to bring the return up. Your funds aren’t guaranteed, however. With Prosper you can get started with $50.00. Certainly not much to risk, to get your feet wet.

Lending Club isn’t currently accepting new lenders. The site says, “Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future.” They use a system they call LendingMatch to suggest a portfolio of loans to the lender. It takes various aspects of your profile and matches you with borrowers that you may have a “connection” with. That connection can be you both like dogs and are MySpace addicts. The lender can override the suggestions and make their own decisions.

Zopa operates a little differently. They tie your investments in with an NCUA insured CD. They partner with various credit unions to accomplish this. As a result, your funds are insured up to $100,000, but the earnings compare with 1-year CDs. Currently they are advertising 3.75%. The minimum required to start at Zopa is $500.00. Zopa has a feature where you must agree to help at least one borrower out. You do this by reducing your earnings rate and as a result, reducing the borrowers loan rate. People helping people is the true theme of all three services. The fact that everyone mutually benefits makes it very rewarding.

I don’t think the person-to-person lending will replace other investment alternatives, but I do think it can add some return to a well-balanced portfolio. If you manage your lending portfolio well, the returns are certainly attractive compared to other investment vehicles. Our specialty will remain with quality, guaranteed returns in certificates of deposit, but I certainly believe putting some extra funds at Proper or one of the other services is a good idea.

For more information visit our Peer-to-Peer lending section on our site.

Chris Duncan is a FINRA Registered Representative. He specializes in helping clients find the best and highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Please visit our Certificate of Deposit Rates page.

It’s Like E-Bay for Loans

davidguide — Fri, 02 Oct 2009 12:52:26 +0000

photo credit: A6U571N
Imagine making money like E-Bay, but in the world of loans. Two years ago, if you lent me money with principal and interest from a family member or friend I would’ve said you are “crazy”! But today there is such an opportunity to get a loan from people who want to lend money. Rather than get “burned” from our family and friends for lending money anyway we should look to other alternatives. There is an alternative much like E-Bay. It’s called Peer to Peer Lending. They are called “lenders” and these are ordinary people. These lenders could be your boss, friend, grandmother, aunt, dad, or even a stanger. Their job is to fund loans on a website called Prosper.com. It is a good idea that if a family member or friend borrows from each other, do it in a format where relatives and friends can get lend their money and get paid back with interest and principal. Peer to Peer Lending was founded on the very same principal as E-Bay. Namely to allow online bidding through an auction style process of lending. Chris Larson who is the co-founder of E-Bay is the owner and founding father of Peer to Peer Lending. If you have made a lot of money selling on E-Bay or made a deal through buying that product, the same goes for Peer to Peer Lending. Except the item is a person who needs a loan, and the bidders are the lenders who have cash$$$ A person who needs a loan becomes a borrower. When I needed a loan last year, I was able to secure a loan by doing peer to peer lending and get my loan in a matter of days. The loans are given through Lenders. These “lenders” are collectively involved in purchasing the loan and funding it. So if someone needs $14,000, then it will take mulitiple bidders to secure that amount. There may be as many as 300 lenders bidding for that $14,000 loan at $50 min bids. The amount of lenders may decrease depending on the bidding amounts from each lender. Some will bid $65, 100, $1000, or more. The limit is $25,000 per bid. Peer to peer lending is not in the business of giving away the money. These are loans that must be repaid by the borrower within 3 years. The borrower is subject to credit preapproval to begin listing for a loan. Some may not make it to Prosper, but the ones who do make it, see it as something new and very intriguing! Next time have your friends and family lend to each other in a safe and protected area where people can borrow money and hold them to the same standards like E-Bay where people can trust each other and stranger and friends can make loans. http://www.choicepeerlending.com

Personal Loans » Prosper Marketplace

Person-To-Person Loans – You Can Earn Better Returns

It’s Like E-Bay for Loans