Is your goal to get out from under a huge load of debt? There are a number of ways you can accomplish this. I sat down the other day and counted seven. This included tactics such as budgeting, cutting deals with your creditors, credit counseling and debt consolidation loans.
Debt consolidation loans
The standard or conventional way to get a debt consolidation loan is through a bank or credit union. However, if you’re really in debt and need to borrow, say, $10,000 or more you may have to get what’s called a secured loan or one where you have to pledge an asset as collateral. In most cases, the asset will probably be your house in the form of a second mortgage or homeowner’s line of credit. Of course, this assumes that you have a house you could use as collateral and that you could get such a loan, which is not always possible. The hard, cold fact is most banks and credit unions are very hesitant to loan more money to people who are already seriously in debt.
What is peer-to-peer lending
For these reasons, more and more people are turning to what are called pure-to-peer loans. The concept behind these loans is simple. It’s just putting someone who wants to invest his or her money together with someone who needs to borrow money.
Not a new concept
Peer-to-peer lending is actually not a new concept. There are websites such as Kiva.org that have spent years helping people in the Third World get the money they need to create or grow small businesses. Today, there are a number of ways to get a peer-to-peer loan such as through the Lending Club or Prosper. Both of these have shown good growth. In fact Prosper has experienced year-over-year growth of 367%. And Lending Club has had nearly 20 uninterrupted quarters of positive returns and recently landed on the list of America’s Most Promising Companies as reported by Forbes.
How to get a peer to peer loan
Getting a peer-to-peer loan is not that much different from obtaining a standard loan. However, and here’s good news, there’s far less paperwork. You choose a lender such as Lending Club, create an account and then fill out an application for a loan. You will need to include a credit check, the amount of money you want to borrow and why you want the loan. People who are interested in lending money browse requests, decide which ones they would like the fund and in what amounts.
Even institutional investors are moving in
Interest rates have been so low the past few years that both individuals and institutional investors are moving into this market to earn better returns on their investments. Peer-to-peer lending usually generates returns of 6% to 8% or even as much as 10%. This is why institutional investors invested $100 million last year just in Lending Club.
How it helps consumers
Peer-to-peer loans can be a good way for people to consolidate their credit card debts. Credit cards can have interest rates as high as 20% or even 22%. In comparison, a person who has decent credit could get a peer-to-peer loan for 36 months at 12%, pay off those high-interest credit cards and become debt free in three years. It’s good for both the borrower and the investors who make the loans.
Higher interest rates
As you may have noticed, peer-to-peer loans come at a higher interest rate than a second mortgage or homeowner’s equity lines of credit, which can be had today at 5% or less. However, they are a way to eliminate the middleman – the bank or credit union – get a loan with less paperwork or get money if you can’t qualify for a conventional loan.
A better way to do debt consolidation
Peer-to-peer loans might be good for some people but we believe that our way is a better way to handle debt because our debt counselors can work with your creditors to actually get your unsecured debts reduced dramatically. Give us the opportunity and we can show you how we could help you become debt free in 24 to 48 months. Call us today for more details