Peer-to-peer lending an option in paying down debt
The Wall Street Journal recently reported a sharp increase in the number of loans issued by the nation's largest peer-to-peer lending websites to small business owners and entrepreneurs.
But this industry's bread and butter is really individuals in debt. And what these websites do can help you get out of debt faster -- if you can qualify.
Such P2P sites connect pre-qualified borrowers with lenders, operating in a similar fashion as eBay.
Websites like LendingClub.com and Prosper.com have made it possible for consumers who have already been turned down by their banks to secure a personal loan for debt repayment or other financial goals.
But as the Journal reported, it's not easy to get a loan through these sites. Lending Club, for example, has rejected about 90% of all applications.
Still, in the past five years, the two sites combined have connected lenders and borrowers to generate more than $500 million in personal loans.
These loans have been used to pay off credit card debt, medical debt, purchase cars and fund small business ventures.
Peer-to-peer lending provides an opportunity for individuals to loan money to borrowers and earn a return they'd be hard-pressed to find elsewhere. At the same time, the interest rate for borrowers is lower than most traditional lenders.
Of course, the best way to attract lenders is by reducing the risk of default -- which has been a problem in the past.
When these websites first became available, the risk of default was much higher.
As a result many potential lenders began viewing peer-to-peer lending as too much of a risk. To attract lenders and reduce the risk of loan defaults, the standards have been raised for borrowers to weed out individuals prone to default.
Consumers struggling with debt have several options from which to choose to repay debt.
Debt consolidation, debt settlement and aggressive debt repayments are all ways in which a person can escape high debt levels.
Anyone considering a personal loan or consolidation loan for debt repayment may benefit by looking into these lending programs to see if they qualify.
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