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Micro Lending 2015: p2p Loans in the United States

Peer to peer loans are available in the USA through websites like Prosper, Lending Club, Social Finance, and Zidisha. Each of these social lending sites focuses on a slightly different sector of the American people. The programs developed by each of these P2P companies for facilitating person to person borrowing tend to be similar, but have differences that might make one more attractive to you than the others.

The strengths and weaknesses of each economic assistance method might make on Lending Club microlending more attractive to lenders, while making Prosper more attractive to borrowers, and so on.

U.S. Peer-to-Peer Lending

To assure you have total information when deciding where to borrow or invest, I’ve decided to cover the biggest and most successful social lending networks in U.S. By the time you’re finished reading, you should have a better idea which P2P sites provides the services, terms, and interest rates you prefer, so you’re choices will be more informed and your financial outlook should be brighter.

I’ll start with what’s been called the eBay of American peer to peer lending sites, Prosper.

Prosper P2P Loans – Personal Loans

US Peer Loans

P2P Lending in the United States is Led by Prosper, the Ebay of Peer Loans.

Prosper offers personal loans and online financing to a community of online investors and borrowers. With the slogan “Invest, Borrow, Prosper“, Prosper.com has 1,270,000 members. The site has seen over $316,000,000 in personal loans funded since it first launched.

As a leader in the industry, you can expect the P2P community to grow by leaps and bounds in the next few years. Prosper fought off a challenge by the UK finance giant, Virgin Money, which pulled out of the US market. Prosper and Lending Club now stand as the giants of the American social lending industry.

When you first click on the Prosper site, you’ll see two big buttons: the “I Want to Invest Money” option and the “I Want to Borrow Money” option. Members choose whether they want to invest or borrow and see up-front exactly what the interest rates are likely to be. You’ll notice from the (current) 10.46% season returns for investors and the 6.59% APR for starting rates on AA loans that Prosper offers better rates than many of its competitors–certainly better rates than those outrageous payday loan companies. You’ll find all the information you need to make sound money decisions, while catching a glimpse of how the Prosper system works.

How Investing Works on Prosper

Every new borrower is reviewed by the people at Prosper and given a designation. Interest rates are determined by the designation assigned to members. This means everyone has a place, no matter what your credit history has been or what your credit rating currently is.

Prosper’s peer to peer designations have 7 different tiers. Notice on the chart the seven: designations “AA”, “A”, “B”, “C”, “D”, “E”, and “HR”. Investors should treat these like credit ratings, as each borrower on the site is given a credit status after a checking out process. The better a person’s credit, the better their interest rate is going to be. Even if you have awful credit, you’re likely to be able to get a loan, though bad credit risks are going to be charged usurous rates (for high risk or “HR” credit status).

How Borrowing Works on Prosper

The AA loans start at a 6.59% APR. When you compare this against the 5.18% interest rate investors charge, you should be able to guess how Prosper makes its cash. That extra 1.41% goes to the P2P people at Prosper, though you get services in exchange for their fees. Prosper has the debt collection professionals to assure creditors get paid back their investments. You’ll note that the fixed loan rate goes all the way up to a 35.84% APR rate, so a person with bad credit better be prepared to pay through the nose. Still, people with bad credit or no credit should be able to find new revenue streams through Prosper people to people loans.

If you drop down a little further, you’ll find featured listings of Prosper’s best lenders in various fields and for various ratings. You’ll see terms like “debt consolidation“, “relocation expenses“, “loan consolidation“, “home improvement loans“, “business inventory funding“, and so on. Notice the loan amount quoted and the APR, along with the investor’s prosper rating (which tier they lend money to). You’ll also see how often they’re on the site and how often they offer a loan to a potential debtor.

Lending Club Social Loans

Lending Club is a personal loan and investing community similar to Prosper, but with more stringent lending practices. People borrowing money at the Lending Club are “quality borrowers“, meaning they generally have the following traits: a 715 FICO score, 15 years of credit history, a 13.4% debt-to-income ratio (without mortgage figured in), a personal income averaging $69,570, and an average loan size of $11,418. The LendingClub state its only approves around 10% of the loan applications they see. Despite this, Lending Club has brokered over $545 million in online financial transactions over the years. The investor community in the Lending Club has elite status, since the minimum investor commitment is $20,000.

Lending Club Risk/Reward Table

Below is the reward-risk status for borrowers at the Lending Club. This represents the 7 credit grades borrowers are given on the website and the interest rate each should expect to pay.

  • Lending Club Grade A – 7.44%
  • Lending Club Grade B – 11.16%
  • Lending Club Grade C – 13.79%
  • Lending Club Grade D – 16.06%
  • Lending Club Grade E – 18.09%
  • Lending Club Grade F – 20.01%
  • Lending Club Grade G – 21.35%

Investors shouldn’t expect to see quite these returns on their investments (loans), since the Lending Club takes its share of the profits as a brokering and administrative fee. But these fees are far short of the overhead a conventional bank must charge, so investors at the Lending Club earn steady returns and still make a much better profit for the risk they run than anywhere (else) they’re going to be investing that money.

Of course, lenders at the Lending Club understand they are dealing with clients in a period of economic decline, so some risks are involved. Still, Lendingclub attempts to allay those risks as much as possible.

Zidisha Microlending

Zidisha is a microlending website which facilitates loans between American investors and entrepreneurs in developing countries.

Zidisha, whose name is taken from word for “expand” or “grow” in the Swahili language, is a nonprofit organization itself. Thus the Zidisha microlending site helps American with a little extra cash make a return on their investment, while helping people from less developed countries develop their communities.

Zidisha is very much a social networking site. People from all over the world use cyber cafes and communal village computers to post photos and profiles of themselves and their communities, linking with North American lenders on their Android smartphones and finding ways to make the world a better and more prosperous place. This social networking microloan site is a perfect example of the power average people have to change the world, if they just open their minds and use the tools around them.

The microcredit methods used by Zidisha circumvent a lot of the overhead–and a lot of the local corruption–that has often hampered efforts to lend aid to developing nations in the past. Founded by Sterling, Virginia native Julia Kurnia in 2009, Zidisha is a small micro-finance community (302 businesses helped with around $175,000), but it’s among the noblest concepts I’ve seen on the Internet in a long time.

Grameen America Microloans

Grameen America has something of the spirit of Zidisha. This micro-loan site was built to help Americans fund low-income entrpreneurs right her in America. This is made more amazing because it’s a foreign institution trying to build American communities’ infrastructure. This not only tells us something about human nature, but also about the possibilities of microfunding.

The microfund concept is so adaptable to local circumstances that the Grameen America microfunding project offers affordable loans to business owners in less prosperous American cities and neighborhoods, regardless of their previous credit history, education, business experience, or current income. When open-minded investors begin to meet people with visions, they begin to see new possibilities for growth. Grameen American has the utopian mission to end poverty in America. While even I can’t see the light that brightly, I’ll agree that Grameen America is doing its part towards that end.

This isn’t just some idealistic clap-trap, though. The founders of this microlending organization are the Grameen Bank of Bangladesh, which has been funding business development in underprivileged communities for decades. This Bengali-founded group has been successful enough that Grameen America is now headquartered in Manhattan. It should be noted that the Grameen America people have no direct connection to the Grameen Foundation in Washington DC.

SoFi Social Finance for Student Loans

Social Finance or “SoFi” is a student loan web community “where social meets finance”. SoFi helps students, alumni, and college institutions prosper by creating a new way to finance a university education. The SoFi Social Financing website is an indication of how dynamic and adaptable peer-to-peer financing is. These people at So-Fi have taken a concept used by others and created a niche service that helps people who often need it the most.

Middle class and lower income students are put at a financial disadvantage in this country because of the outrageous prices of a college education (and the stingy nature of bankers and financiers), so it’s a wonder it took this long for someone to have this brilliant idea. I wish I’d have thought of it myself.

2012 Social Finance Community Loan Programs

The following colleges and universities have social loan student loan programs for the 2012-2013 school year. If you’re a student attending any of these schools and you need financing which is flexible, but doesn’t have hidden terms or APR rates, read more about the SoFi community loan programs.

  • Harvard University
  • Boston College
  • Boston University
  • Williams College
  • Babson College
  • Northeastern University
  • Massachusetts Institute of Technology
  • Dartmouth College
  • Columbia University
  • Cornell University
  • New York University
  • Carnegie Mellon University
  • University of Pennsylvania
  • Yale University
  • Georgetown University
  • University of Virginia
  • College of William & Mary
  • Virginia Polytechnic Institute
  • University of North Carolina
  • Duke University
  • Vanderbilt University
  • University of Michigan Ann Arbor
  • Indiana University
  • University of Notre Dame
  • University of Wisconsin, Madison
  • University of Chicago
  • Northwestern University
  • Brigham Young University
  • University of Utah
  • Santa Clara University
  • Stanford University
  • University of California Berkeley
  • University of California Los Angeles
  • University of Southern California

I’ve just learned about Social Finance, so I’m updating this USA peer to peer lending page with this information. I’m going to read more about this site and the services it offers and make a full post later about this exciting new opportunity for secondary education students to get better student loans. For everyones sake who need school financing, I hope the reviews are good.

American P2P Microloans

These are just a handful of the American peer to peer microlending establishment. As you can see, the social money loaning community in North America already represents a full spectrum of crowdsourcing and microfinancing ideas. As time goes by, these ideas should mushroom into a vast network of social lending organizations and microloan organizations, changing the world as they change the financial industries of the Earth.

Related Articles

To read more about peer to peer loans in the United States, here are articles from other sources which cover different aspects of this burgeoning new industry. Hopefully you’ll find something of that helps you in your life, whether you’re a borrower, an investor, or you know someone who is.

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