Over the past few years, peer to peer lending companies have seen a dramatic increase in popularity as many borrowers find that these companies are their best bet for obtaining a personal loan and lenders find that they can earn a much better return on peer to peer loans than they can with traditional investments. In the time since the first peer to peer lending company began facilitating loans, millions of borrowers and investors have signed up to be a part of these companies. There are a couple of peer to peer lending companies that operate in theUnited Statesand a few more that operate in theUnited Kingdom
-United States–
Prosper operates by matching together borrowers that need a personal loan with investors willing to extend the money based on the interest rate that each is willing to accept. With more than 1 million borrowers and lenders listed on the company’s rolls, the company is one of the biggest peer to peer lending companies in the world. Prosper automates the funding of the loan and the dispersal of payments to investors to make the process as simple as possible for both borrowers and lenders.
Loan requests from borrowers range between $2,000 and $25,000 and all loans have fixed interest rates for the life of the loan. The loan terms are generally for a period of three or five years and payments for the loans are deducted directly from the borrower’s bank account. Lenders like Prosper, as opposed to other peer to peer lending companies, because investing in the loans provides the lender with a higher rate of return than other investment vehicles and borrowers like Proper because they are able to get the loan that they need at an attractive interest rate that is usually lower than the interest rate they would get through a bank.
Lending Club only accepts borrowers that have good credit and a nearly blemish free credit history. Borrowers that apply for loans on the website must pass a rigorous underwriting process, after which nearly 90% of borrowers are rejected. After the underwriting is completed, the company grades the borrower’s credit risk, assigns the loan an interest rate, and categorizes the loan with similar loans to make them easy for lenders to browse.
To obtain a loan on Lending Club, the borrower must create a loan profile that contains their information, the reason why the loan is needed, and the amount that they are requesting from lenders. Lenders browse these loan profiles and decides which loans to fund based on the rating of the loan and their personal feelings about the risk of default. Lenders can invest as little as $25 in each loan that they choose and they pay a 1% service fee on the money paid to them by borrowers.
-United Kingdom-
YES-Secure
YES-secure accepts borrowers from the full credit spectrum, making the company one of the best peer to peer lending companies for borrowers with bad credit or a short credit history. The company offers unsecured loans at attractive interest rates that can be used for any purpose that the borrower deems necessary. Member interaction is boosted by the social networking features of the website and borrowers can choose to have their loans funded by the people in their personal social network or by any lenders registered with the company that wish to invest in their loan.
The typical repayment term for a loan obtained from YES-secure is between one and five years. The process of applying for a loan is designed to be quick and simple, and lenders can easily browse through the listings of loans to be funded to choose the loans that they would like to invest in. The company reports loan amounts and payment histories to the credit monitoring bureaus so that the information can be included in the borrower’s credit history.
Zopa
Zopa brings together individuals that want to borrow money with individuals that would like to lend money and earn a return on the amount lent by allowing qualified borrowers to list loan applications on their website for potential lenders to browse. The underwriting standards for borrowers are strict and less than 50% of loan applications are approved for posting. The most common reasons for a loan application being rejected is that the borrower has a credit score that is too low or that the loan amount they are requesting is so high that they may have trouble paying it back.
Zopa was one of the first peer to peer lending companies to operate in theUnited Kingdomand has streamlined its processes over the years to make it easy for borrowers and lenders to have a good experience with the company. The terms and conditions attached to the loans are very flexible and allow the borrower to vary the amount of their loan payments, choose a repayment term of three or five years, and pay off the loan early without incurring penalty fees. Lenders pay an annual fee of 1% of earnings to the company and borrowers are charged a loan origination fee when their loans are accepted for listing.