Peer to Peer Loans Match Lenders to Borrowers

Peer to peer loans bring ordinary people together in a lending marketplace.

Prosper was the first site to allow consumers to cut out the middlemen (banks). But Prosper offers all kinds of different loans to bid upon.

The Lending Club also offers peer to peer loans as financial aid for colleges. But their borrowers must have good credit.

Now- there are new sites which focus specifically on college loans.

The credit crunch has hit this market hard.

And despite congressional increases, there is still a growing gap between federal student loans and college costs. Some reasons why peer to peer college loans make sense are:

For Borrowers, there are

• low, reasonable interest rates
• less concerns about credit scores
• no cosigners needed
• deferred payments
• checks that go directly to them

For Lenders, there is

• a lower default rate with student loans compared to other loans
• the personal satisfaction in knowing they helped someone to succeed
• an element of chance which makes it exciting, like betting on a race
• the experience of using small sums of money to make a difference
• a more personalized experience than contributing to an alumni fund


Peer to Peer Loans...Three Models To Choose From

1. Up Close and Personal


GreenNote

GreenNote uses the concept of a social network. It is about tapping into friends, relatives,co-workers and anyone you know who might wish you well.

You set up a profile and make lists of anyone who might know of you. They are contacted by email and asked to lend you money for school.

Contributors can give small amounts (as low as $100)- it will all add up.

The interest rate is a fixed 6.8%. There is no cosigner and no credit check.

Students have a 5 year deferment while in school and a six-month grace period after graduation. They have 10 years to repay the loans. GreenNote draws up the documents and takes a small fee from all the parties.




2. Safely Anonymous


Fynanz

Fynanz uses the concept of an auction. You give them your information, which they use to assign you a rating. Any lender can bid to loan you money based on this rating.

All identification is kept private. Lenders and borrowers do not have access to any information about each other.

Many lenders can participate in your loans- the minimum amount they can contribute is $50. Loans are guaranteed- fully or partially.

Juniors and seniors do not need cosigners- freshmen and sophomores do. (However cosigners are released after 24 months of timely payments.)

The interest rate is the LIBOR plus whatever margin is the winning bid. Repayment is in 5, 7 or 10 years.

Loans may only be used for approved expenses. (Generally- tuition, room and board, books, and other school related costs)



Fynanz has suspended its peer to peer lending because of market conditions. It is now trying to interest potential lenders in its software, so they can penetrate the student loan market.





3. Statistically Driven




People Capital

People Capital is the newest voice in peer to peer loans. They accept any kind of investors- individuals, groups, and financial institutions.

They use their own patented statistical model to make a student loan. Education factors such as SAT scores, declared majors and college rankings all play a part.

They assign a ranking to every applicant- a scale of 1-9 is used with a "+" or "-" to indicate the high or low end of the zone.

What they measure is the future ability of the graduate to repay student loans, so that no credit student loans are possible.

Credit history, co-signers and guarantors are not required.

Sort-term, long-term, balloon payments and consolidation loans are all offered.

Only accredited students can borrow and peer to peer loans can only be used to pay for educational expenses, such as tuition and fees, room and board, books, school supplies, and transportation.




Peer to peer loans highlight the power and effectiveness of individual consumers. You can make these private loans work for you.


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