Peer to Peer Lending
Ok, this is a little off the normal track and not I.T. related. Those who know me, also know I’m a serious investor and have been for decades. I’m going to document a few disruptive technologies that I have been watching with interest. None of these are publicly traded at this point.
I think in general, people hate dealing with lenders and banks. I know I don’t like it. I’ve gone into a physical bank about twice in the last 10 years. One time was just last week to dump a gallon of change into their fancy machine that counts it. The last time before that was a couple of years ago when my account had unauthorized charges and I needed a new card while traveling. For normal financial activity, I’m 100% online.
Even financing a home loan can be done entirely online; I’ve done refinances with Quicken Loans and it was very smooth. For home loans, i have also use LendingTree, which is another disruptive lending site. At LendingTree, you fill out a simple forms, and you get proposals from several banks without leaving your computer.
Lately, I have been researching Peer to Peer personal and student loan companies. These operate essentially like Kickstarter except for loans. There are essentially two parties that use the sites; the “investor” and the “borrower”. From a borrower perspective, you fill out a simple application, and your loan request is entered into the system. Then the “investors” are able to review the loan data (sanitized) and choose specific loans to invest small amounts into. A loan of 10k may have 50 investors, each putting in $25.00 up to maybe several hundreds. There is enough loan data so that investors can view credit scores, default rates and expectations, and make their own decision about which loans to invest in. The Company pays the Investors, and the Borrower pays the Company. Somewhere, the Company makes their cut from a marginal percentage charge or some fee. Typically, these costs are much lower than traditional banks. However, the biggest advantage is that you DON’T have to deal with the “normal” banks. It’s simple, it’s online, you don’t have to beg anyone, I would view the dramatic movement to Peer to Peer lending as having two main drivers; lower costs/fees which translate into better rates for Borrowers, and improved returns for Investors. The second driver is simply that I think many people dislike dealing with the large banks due to the hurdles, inconvenience, hassles, fees, etc.
There are two main companies in the P2P Lending space; Lending Club and Prosper. Lending Club is the original and is larger, but they are very similar. Here is a good explanation of P2P Lending. Peerform is also a similar up and coming lender that I am not as familar with. Most of these are SEC registered and do loan origination through FDIC bank arrangements. Do your own due diligence, this is just me sharing some notes and is not any kind of recommendation.
Then, there is also a Student Loan specific P2P lending site. SoFI (Social FInance) is a P2P lending site focused on helping those with student loans. This is another area where traditional banks are clueless. I know people who have used SoFI. In one case, the female student borrower was in their late 20’s, very successful and earning extremely high wages. Traditional lenders still asked for a co-signer! What an insult. So, they can go to SoFI, fill out a simple form, and have 30k or 40k for a student loan refi with little effort and rates much reduced from traditional lender rates. I’m not going into a lot of detail but I want to list some links where I started my research.
- VentureBeat – http://venturebeat.com/2012/09/11/sofi/
- Forbes – http://www.forbes.com/sites/petercohan/2012/05/15/sofis-mike-cagney-wants-to-fix-student-loans/
On a slightly different note, I’ve been spending time on https://www.motifinvesting.com. It’s a site that lets you create baskets (motifs) of stocks, and then invest or trade that basket as a whole for very inexpensive commissions. Very cool, and a lot of fun.
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