Since the beginning of organized modern lending in America, the only way to secure a loan was to go through a bank, credit union or other traditional lender. Banks have had the upper hand now for over 200 years when it comes to loans and the borrowing process, and banks require lots of detailed paperwork from borrowers and subject borrowers to strict credit and lending rules. If one didn’t pass the banks rigid criteria, one would not get the loan and it was difficult to get one’s loan reconsidered by the bank. These practices have left many deserving individuals unable to get loans.
Then entered payday loan lenders. These lenders would offer loans to those the bank shot down for a loan, but these loans were and are often for no more than two weeks to three months. Payday loans also feature for the most part absurd interest rates, as high as 300%. I’ve seen payday loan contracts with four digit interest rates. More than 80 percent of payday loans are rolled over into a loan extension with exorbitant fees or are followed by another loan within 14 days. Payday loans are clearly no option for borrowers looking to get a fair loan, as payday loans are nothing short of predatory lending and usury. Many people using payday loans end up trapped in a cycle of debt and ever revolving loan extensions that can take years to get out of. To make matters worse the payday loan companies auto debit accounts, leading many unfortunate borrowers to end up with insufficient funds, late fees, NSF fees and other financial distress.
The last decade has seen a new form of lending for personal loans, one that is changing the landscape for borrowers in need, even for those with excellent credit. Since 2005 peer to peer lending has been offering borrowers another avenue for borrowing money via personal signature loans. Signature loans are loans that require nothing more than your signature that you promise to repay the loan. These loans are made by individual investors, rather than a company, and these investor lenders compete for your business on the basis of your credit. The interest rates tend to be much lower than traditional brick and motor banks and credit unions, due to having much lower overhead than banks so they can provide the service more cheaply than traditional financial institutions. These loans are made through peer to peer lending sites. The loans obtained from these sites are always unsecured loans, and are not protected by government insurance. Lenders can and are however often sold to other lenders, as these loans are considered securities and are hence tradable on the open market.
What do you need to obtain a loan from these peer to peer lending networks? You tend to at the minimum have held your current job for at least 6 months and lived at your current address for at least 6 months, although there are a few peer to peer lending sites out there that have cut this requirement down to a mere 3 months for job and time of residency. You also need to verify your bank account, employment and income, and agree to a credit check. Many of these peer to peer lending sites will lend to people with less than perfect credit or even bad credit or no credit, so these marks on your credit report do not necessarily mean you will be outright denied a loan, however these negative marks on your credit will affect what interest rates you will be offered. Even the highest interest rates offered by these peer to peer lending networks are much lower than the fees and interest you would pay if you went with a payday loan.
Peer to peer lending may be the option you are looking for if you have been turned down by banks and credit unions and do not desire to be ripped off by predatory payday loan companies that can and often do charge upwards of 300% or more in interest and fees. Peer to peer lending is one of the fastest growing platforms and investments. More people are turning to peer to peer lending in the wake of banks tightening up their loan criteria.