I learned this lesson from my uncle, “Only borrow money to make money”.Okay you’ve decided you need to borrow money and it is to make money, but you have limited resources from which to draw. You’re in business for yourself and you need to push your business to the next level. For any number of reasons you don’t want to borrow from your home bank right now. You refuse to do the unthinkable and tap your IRA or 401K. Too, asking friends and associates is out of the question. Many of us have come to this financial juncture before. No matter your situation there may be a viable solution for you. There is a new kid on the block in the lending market that is very unique. It is called peer-to-peer lending. Peer-to-peer lending is not simply a new concept in borrowing money: it trounces the old traditional ways of obtaining loans. Peer-to-peer lending has many advantages for both borrower and lender. Its principle being founded on the community sharing concept.
What is Peer-to-Peer Lending?
Specifically, peer to peer lending is a body of investors and lenders as an aggregate community. The community serves two main purposes, to make money for investors and to lend money to borrowers. You can enter the community as a lender or a borrower. It is your choice. The advantages of peer to peer lending for the borrower are that:
1) the borrowing requirements are less stringent than a conventional bank,
2) interest rates are much lower than loans obtained through conventional means
3) with a conventional bank the type of loan determines the interest rate; personal loans being the highest.
3a) with peer-to-peer lending personal loan rates can be as low as 7.5% instead of the minimum of 16% at conventional banks!
4) risk is spread over a large community consisting of hundreds of thousands investors, which greatly improves your chances of getting approved
5) you’re not just a number; you get to add the personal element to your cause through your story-every investor wants to understand the applicant and why the loan is needed
6) your loan can be in your bank account quickly, within a matter of days.
How To Apply for a Loan
To apply for a loan you post your request to the community stating why you need the loan and how you intend to pay it back. Here’s the important part-be honest, clear and concise in stating why you need the loan. It is important to add the human element here. The more transparent you are the more likely you are to get the loan. Also the community likes to see honesty and that loan requests are for a good purpose. Many borrowers post a picture of themselves-often in their home, work or school environment. This helps others to feel they are part of your quest. Once a young law student posted a tuition loan request and told how he needed the loan to finish his last year in graduate school. He spoke briefly of the trials and tribulations he had faced-how he was at the end of the road-he just needed the final push. His was a heart rending story. He included a picture of himself walking to receive his baccalaureate diploma. His picture was the stake through the heart. Needless to say he got his loan in less than a day. So be honest. You want the investors to believe in you and your purpose, just as much as you do.
Tips To Get Ready Before Applying
With peer to peer lending the stories are the most interesting part. Many are engaging, and for investors, it is fun looking over the stories and determining which requests to invest in. It is a good idea if you take a look at the other requests to get a feel for what you should do. As you peruse the stories you will get an understanding of how investors will view you too! Here are a few tips on how to get ready.
Choose pictures that are:
1) clear, not blurry
2) that connect with your situation
3) that demonstrate your story
4) that show you in the prospective environment, albeit, your home, college, work or business
Write your draft
Draft your statement in advance to actually applying. You should get any financial documents you may need to refer to as well.
1) tax documents
2) business papers
3) the actual bill you would like to fund
4) your credit report
About Your Personal Information
Finally, investors pledge either a portion (as low as $25.00) or even all of the money to your loan request. Of course the investor wants to know that you are going to pay back the loan. So you have to divulge financial information but sensitive data such as you social security number, home address, place of employment, telephone number and such is kept secret from the community and is only known by the on-line banking house.
How Much Can I Borrow?
You can request a loan up to $25,000. When you repay, you send in one payment and it is distributed by the on-line banking house to the investors. You are given up to three years for repayment. Some of the resources for peer to peer lending are prosper.com, kiva and lendingclub.
A Final Word…
It is refreshing to see a new financial vehicle via peer-to-peer lending. For the average Joe, peer-to-peer lending is a God-send. For small businesses who need additional capital, college students who need educational loans and the general consumer who is in need of a home improvement loan or personal loan, peer-to-peer lending seems to be an invaluable resource. Because of its inherent nature of a “friend-to-friend transaction” that addresses the needs of the small man, I envision that peer-to-peer lending growing to cover a major part of the micro loan market in the near future. Only time will tell. In the interim, many applicants who need a deserving break will benefit.