Online Social Lending — A Beginner’s Guide
If you need to borrow money amounting to $25,000 or less, you may want to give online social lending a try. The trouble with banks is that they usually have very stringent eligibility standards. Further, the application process can take a long time and this is inconvenient for people who are in immediate need of funds.
Borrowing from online social lenders is attractive to many people because these outfits usually charge lower interest rates. It also affords lenders higher profits so it’s a win-win situation for both parties. However, since it is a fairly new practice, people might be wary of borrowing money through these channels.
To the uninitiated, here is a primer on online social lending.
Better Than Banks?
Online social lending is gaining popularity and is considered by many as a viable alternative to banks. For starters, online social lenders are less restrictive when it comes to the standards they require. The response time of online lending is much quicker compared to that of banks’.
While banks may be quick to turn down loan applications, online lenders seem to listen to their borrowers’ situations more closely and take risks on them more readily. The reason why they can afford such risks is because they often partner with other lenders who share and distribute the risk.
Certainly, banks will continue to figure in prominently in the loan industry but online social lending is also starting to gain favorable ground because they are small business and start-up friendly.
Pros and Cons Of Online Social Lending
Popular lenders online websites have the following:
- Zopa processes applications quite quickly, and charges no transaction fees. But they’re also quick to turn down applicants with bad credit scores. They also base their interest rates on your credit score, so make sure to keep your credit rating up.
- The Lending Club is an online lending site that started in Facebook. It uses social networking platforms to generate good loan programs for you. However, like Zopa, they tend to base their interest rates on your credit score.
- Next is Virgin Money. This website loans money among family and relatives. Loan arrangements between the two parties are meticulously recorded. However, it is better not to get involved if you have other alternatives.
- Last is Prosper. This website is also a site for auctions. In here, lenders bid on different interest rates. Borrowers state the amount that they are willing and capable of paying. The catch is that, it is a bit difficult to get loan through this site, for other borrowers can offer a greater interest rate compared to yours.
Conclusion
The bottom line is, social lending online is more convenient than getting a loan from other formal financial establishments. That is why it is worth the risk. However, in spite of all the good stuff you hear about this new trend, get as much information as possible. Learn about banks and other online lender sites – and decide which medium suits your needs better.
