The Plus and Minus of Social Lending- The New Age Financing SystemFinance | January 18, 2010 at 1:22 am
With credit card companies lowering credit limits and increasing interest rates more and more people are turning towards social lending service agencies for financial aid. Social lending organizations are websites that help you in getting loans for personal purposes. You might want to refinance your credit card debt or you might want to finance the birth of your first child or by a new house-social lending websites come to your rescue. The interest rates are just about 7% -8 % which turns out to be less than 10%-15% less than those of credit card lending. The service charges are also much lower than credit card lending. The reason being, social lending is done online and the lending organization does not have to spend huge amounts of money on brick and mortar offices. With so many advantages, you’ll naturally want to go for social lending services won’t you?
Lending Club is one social lending website that has gained a lot of popularity in recent times. It offers loans to people with different credit backgrounds and it gives different investment opportunities to the lenders. Now let’s see the advantages you are entitled to when you go for social lending:
- A poor credit history might not get you a loan from banks, but social lending organizations don’t restrict loans to you. You’ll get the louisiana payday loans that you want but maybe you’ve got to pay a bit more than your counterpart with a good credit score.
- If you are an investor on the lookout for returns higher than that of CDs and stock, you can seriously think of investing in social lending which gives you higher annual returns on the P2P loans that you give out to borrowers. However, the social lending organization is going to charge some fee as service charge for this.
- A borrower’s loan grade is decided upon by his/her credit history and the reports given by the credit bureau. Those with bad credit histories have to pay higher interests and fees. The amount of late fee charged also depends on your credit record, the lower being for those who pay on time.
- Different social lending sites have different interest rates specified for borrowers. You can visit Prosper.com which has one of the best interest rate schemes for borrowers in the social lending industry.
Loopholes in the social lending system
- Social lending requires you to satisfy a lot of eligibility criteria for obtaining loan. Your state of residence, FICO score, debt to income ratio, credit history for a span of 3 years, revolving credit utilization should all be within their prescribed limits for loan.
- Even lenders have to satisfy eligibility criteria before being allowed to work with the social lending websites. Their state of residence, gross income, net income, and net worth of household commodities should all fall within the eligibility criteria.
- Risk of monetary loss is involved for lenders as borrowers might default payments. The social lending organization does arrange for partial compensation, but the entire amount of money lent is hardly recovered.
- The facts provided by the borrowers and lenders may not be genuine.
- Fees for certain services may be very high