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Using Peer To Peer Loans To Pay Off Credit Card Debt

by Jim ONeil on April 1, 2011

in credit card debt

In 2005, Zopa was the first peer-to-peer lending Web site to launch in the UK. This form of lending has recently increased in popularity. Consumers are increasingly using the cheap loans to pay off credit card debt, bypassing loans bank offered.

Investors who are willing to accept a certain amount of risk are buying portions of these loans and profiting nicely.

Zopa reported making $8 million monthly in peer-to-peer lending. Prosper.com, a U.S. site, has over $221 million in loan funding and more than one million members. Lending Club recently surpassed $223 million in loan originations provided to 23,500 individuals.

The organization reported that 62 percent of these borrowers are using their loans to pay off credit card debt.

Other common uses for the money include paying medical or small business expenses or making a down payment on a home. Lending Club Senior Director of Product Strategy Rob Garcia reports that the structure of the organization is similar to that of a bank.

Loans apr are competitive with those offered by banks and approvals are based on risk. The company converts these loans into uncollateralized debt obligations and sells these to investors.

The debt pool created by peer-to-peer lending contains neither mortgages nor subprime debt. Borrowers are subject to credit checks and identity verification. Factors weighing on the loan approval decision include job stability, requested loan amount, open and total credit accounts, recent credit inquiries, loan maturity, and revolving credit use.

Lending Club rejects 90 percent of applicants based on one of these factors.

Like payday loans, peer-to-peer lending features a direct model, with no banking institution in the middle. This lowers costs and those savings are passed along to investors and borrowers.

Mr. Garcia reports that Lending Club borrowers usually receive a 20 to 30 percent better rate than offered by a bank.

wattsy

I think that is a very neat concept of taking loans out through peer to peer loans. I like the concept of the lender being able to charge what interest rates they want. It seems like a good way to make money if you have money to lend.

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