Get a loan to consolidate debt from peer to peer lenders.
With the difficult lending standards set by banks as well as other private lenders, using the so called traditional methods for consolidating or paying off medical or credit card debt may be more challenging than in the recent past. This is where peer to peer loans may be helpful as they can address that need. Due to the challenges involved in consolidation many borrowers are searching for new ways to consolidate their debt and pay off their credit card bills. Peer to peer lending sites, sometimes called social lending, is providing assistance by providing this alternative.
Using companies such as Zopa, Prosper, SoFi, and Lending Club, many families who may not have qualified for (or couldn't afford) traditional higher interest bank loans are getting fixed-rate, lower interest loans through social lending sites, also called peer-to-peer lending. The cash made available from these companies can be used to consolidate debt, pay bills, start a business, and address other financial needs.
Types of debt consolidation loans offered by peer to peer lending sites
Typical borrowers are looking to consolidate their outstanding balances from credit cards with higher interest rates. The typical loan offered that can help these people is for a three-year period of time, and the amount provided will range anywhere from a minimum $1,000 to a maximum $25,000. There are of course conditions that need to be met by the applicant.
For example, LendingClub will rate the loans based on an applicant’s credit score. In order to use this peer to peer lending company there are some minimum credit scores needed from the applicant in order to apply. Interest rates on the debt consolidation loans will typically range from around 5 percent up to 22 percent, depending on a borrower’s credit history and other factors. The range is almost always lower than what the interest rate on the applicant’s credit card is so the individual will still save money, which is what consolidation is all about.
What are the social network lenders loans used for?
Peer to peer (P2) loans are used for a variety of reasons and have been used for funding anything from new businesses or entrepreneurial ventures to wedding expenses and medical bills. Credit card debt consolidation also has a big demand. But really any bill or debt (business, personal, payday loan, etc.) can be paid using a social network lender.
Families and individuals have been flocking to the web sites so they can raise cash to pay off their outstanding debts, including credit card bills. For example, at Prosper about half of all loans provided are used for debt consolidation as well as paying off high-interest credit card debt. Zopa has said that consolidation is the leading reason that individuals request their loans. Prosper says that the simple structure of the process and the fixed-rate loan that is offered to customers can be very helpful to those working to pay off the balances on their credit cards. Read more on LendingClub loans.
How peer to peer lending sites work
Each lender is different, but in general, here is how they work. Anyone interested in borrowing money will create an online profile of themselves. as part of this process, they will need to post and also share a range of verifiable personal and financial information with the social lending sites. The information will be verified as part of the peer to peer loan debt consolidation process.
Lenders (which is a person or business who wants to lend money/invest) will read through profiles and help fund the loan, whatever the reason for it, in increments of $50 or more. The interest rate paid to those lenders will provide higher returns than traditional CDs or money market accounts. The borrower will then receive the funds from the loan and can use the money for what was requested. Find other ways to get help with debt.
Does this work for paying down debts?
If the borrower does their part, then yes. Here are some examples. There was a client of Lending Club who was paying at times up to nineteen percent interest rates on $2,000 in credit-card debt. This customer sought to get help with his debt and refinance it at a local bank. However, the person wasn’t getting responses from those financial institutions or banks for loans, not even at a high interest rate.
The client then researched the various peer to peer lenders and their debt consolidation products. They then applied at LendingClub, and the customer received a debt consolidation loan with a 12.8 percent interest rate. This was for the entire $2,000 loan balance. So the interest rate is 6-7% lower on the peer to peer lending site, and that allowed the client to consolidate their debts and address other financial needs.
Another example is a borrower who received a $13,000 loan from Prosper to help pay off two credit cards in which the person was paying interest rates of more than 15 percent. The social lender allowed the client to consolidate the accounts. Through the peer to peer site Prosper the individual was able to get a new three-year loan with an interest rate of less than 8 percent. So the client was able to lower their rate by 7%, saving hundreds of dollars per year. More on Prosper loans.
If you fall behind on loan or can’t pay the debt
Life happens, and yes, delinquencies and missed payments may occur. The lending company will try to work out a new payment plan with the borrower or they may end up sending the outstanding loan to a local or national bill collector. In either case, more than likely the reason for borrowing money (consolidate debts or bills) would have been completed, but now the peer to peer lender is owed the funds. Note if there are payment issues, this will more than likely impact the customer’s ability to use a peer to peer lending service in the future.