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Peer to Peer Lending A New Alternative to Credit Cards?

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Authored by Lori Godin in Credit Card, Loans
Published on 01-02-2009

With the impact that the state of the economy is having on lenders and banks throughout the country, with the tightening of restrictions to potential borrowers – many customers are turning to the phenomenon known as peer to peer lending. From going back to school, or obtaining a low cost consolidation loan, the options are endless with peer to peer lending websites.

Peer to peer lending allows an individual to join a part of a community and raise funds from a variety of sources up to the amount that they require for a loan. Making friends and an impact within the community benefits the borrower, as the rapport developed with the investors can lead to feelings of trust, empathy and recognition to the situation of the borrower.

The individual’s credit rating is displayed, as well as a profile that allows the lenders in the community to contribute as little as $10.00 or as much as the whole amount. The reason that the funds are being requested, as well as a history is used to create a rapport with potential lenders.

There is one large benefit to peer to peer lending. The costs are minimal, and allow for human to human interaction and the interest rate is set by the borrower. Of course, the higher the interest rates – the more activity within the community for this profile. There are many factors that may contribute to a high interest rate, including a negative or lack of credit history and a large amount being borrowed. A borrower might set a high interest rate if they are seeking the funds quickly.

Friends and family members can sign up to the website to help out the borrower with as little or as much as they can afford. Profile information can be shared, as little, or as much as the client would like to friends, the entire community, or any visitor that appears to the website.

A payment plan is scheduled and payments are debited from the borrower’s bank account on a bi-weekly or monthly basis. The principal, combined with the interest rate is used to calculate the repayment schedule. The time over which the payments are paid is decided by the borrower, allowing the client to create a customized repayment plan that works within their budget.

How are lenders repaid? Through an advanced system that allows integration of the checking account, investors can see interest payments in as little as one month.

As the requirements for borrowing through the traditional methods of banks and lenders become more stringent, peer to peer lending is going to experience rapid growth. Anyone can sign up for the service, free of charge, to become a lender, or a borrower or simply to join the community.

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