More and more consumers are turning to peer lending services as a solution to their borrowing needs. This trend is a direct result of banking and credit card policy decisions. First, consumers are facing increasing challenges with the tight lending environment. Consumers are either unable to secure a personal loan or wind up paying a less than desirable interest rate. In addition, credit card companies have been lowering credit limits, increasing penalty fees, and raising interest rates. With interest rates as low as 7.9% at some peer lending sites, consumers are making the switch in order to save 10 percent or more compared to what they would paid their credit card companies and banks.
Peer lending services are able to compete with traditional banks and credit card companies because they do not have the same overhead and operating costs as their brick and mortar counterparts. As a result, they can pass along these savings to lenders and borrowers in the form of lower service fees and higher returns. In addition, these services offer a range of possibilities for consumers with different credit scores. For instance, those who have a good credit score are able to borrow higher amounts at a lower interest rate.
This does not mean every borrower receives a loan. Borrowers must still meet certain requirements before receiving a loan. These requirements may be different across the different companies ranging from a minimum FICO score, a debt to income threshold, and certain standards around credit delinquencies, inquiries, and utilization. By having a loan screening process, the risk to the investor is mitigated to some degree.
For investors, the primary appeal of peer lending is the opportunity to earn a higher return than they would receive in a traditional savings or certificate of deposit account. With this higher return, investors also accept additional risk. The primary risk is that a borrower defaults on the loan and is unable to pay it back. In this case, the lending company will attempt to recoup some or all of the money, but there is no guarantee the funds will be recovered. In spite of this risk, savvy investors have figured out ways to minimize the default risk and generate impressive net annualized returns.
Even with the appeal of higher returns, peer lending may not be for everyone. Lenders also have to meet certain requirements. Some peer lending services require investors to have a certain annual gross income and net worth. These requirements help ensure the investor has some level of sophistication and will be able to tolerate the risks involved with this type of investment vehicle. Peer lending is an emerging trend and is not as widely known among those who would invest in stocks, bonds, and mutual funds. This industry is in its early stages so it will take time and education to build trust and confidence with investors slickpaydayloans.
Peer lending is continuing to attract more and more attention. The early adopters of these services are receiving tangible benefits in the form of lower monthly payments on the borrowing side and higher returns on the lending side. The early pioneers in this industry may even become household brand names in the future.
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