Peer to Peer lending market picking up steam (loans, collection, small business)
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Borrowers in this slumping economy say the peer-to-peer loans are more accessible and organized than ever before.
Many of the loans were for small businesses, homes and personal expenses, such as credit cards and college tuition.
It's an arrangement that can benefit both parties, Advani says. Lenders receive better interest rates than they would in savings accounts, and borrowers pay lower rates than they would to traditional lenders.
As more peer-to-peer lending companies pop up, they offer varying approaches. Some help set up loans between family and friends; others cobble money from many lenders for a loan between strangers.
Borrowers post short profiles on the company's Web site requesting loans, and dozens of lenders can contribute until the loan is funded. Rates start at 7.88% for borrowers with good credit histories.
"We're streamlining the process between those who have the money and those who need it."
Peer lending has risks like any investment, but "the risks they (the lenders) have are based on their own individual criteria."
I thought about it (as a lender), but the default rates are rather high. The interest rates with these loans are above market value as a result the people that take out loans with these terms tend to be bottom feeders.
Also, I don't like how there isn't a secondary market for the loans. It would be nice if you could sell your piece of the loan to someone else but you have to keep it until maturity. It seems like it should be pretty easy to create a secondary market for the loans, so I wonder why they haven't done it.
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I have a friend who does it on real estate secured assets. (Usually a bridge loan to builders or remodeling)
He pools about 6 private lenders and they make a 2% fee + 10 -14% interest depending on terms / risk. He has only done 2 foreclosures in over 30 loans lent in last 3 yrs. He keeps in a first position or a strong backed second (with low principle on 1st) and keeps a close rein.
I would like to do this too, if I can find a way to collateralize private notes... I'd hate to have to take back a personal residence.
I think the financial markets are giving us (private lenders) a 'gift horse' at this time when the banks are using our deposits very poorly. (and treating depositors and borrowers bad)
I'd like to see an Amazon spearhead peer to peer lending
In this business and banking climate, it is looking like a perfect set up for some widget sellers to start looking into the peer to peer lending biz. A big company like Amazon could do a small side thing of offering loans to a select group of applicants and go from there. Money is fungible. The crucial part is making sure the borrower pays it back.
If we could kill off banks this is what would replace it. I would expect this to split off into bond markets and quickly revolving credit. If you ask what's the difference these loans are full reserve or time deposits. It does not grow the money supply. The problem is when banks do loan again they will crush this market with fractional reserves which allow them to grow money cheaply and leverage future losses they will pass on to tax payers.
The problem is when banks do loan again they will crush this market with fractional reserves which allow them to grow money cheaply and leverage future losses they will pass on to tax payers.
Also, interest rates will be a decisive means of herding borrowers. Offer teaser rates and most, if not all, people jump at them. Still, I do like the competition that peer to peer lending could champion. Once again, money is fungible. As lending prospects dry up, you switch over to another financial instrument. So, why haven't credit unions taken off? Is it because they do not do any fractional lending?
I've used prosper.com. Lent out 100$ got it all back at 10% interest or so. However, I only lend to AA borrowers (good credit). However I pulled all my money out because:
1) the banks get the best borrowers. If someone is going to prosper chances are they aren't in such a great financial position
2) Banks get to use fractional reserve banking
3) You have to pay taxes on the interest income you earn.
4) If you lose your loan you are out big time
5) The loan value plummets during times of inflation. You get paid back in dollars that are worth less.
From what I've read, a negative return is virtually guaranteed. Many of the borrowers have no intention of making payments, and the service contracts stipulate that the servicer need do basically nothing in the event of default. A notification to a collection agency is about the most they'll do. Plus who's to say that most of the borrowers aren't Nigerians?
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