In a tough credit market, those in need of cash, whether for bills, living expenses or to help run a small business, are increasingly seeking loans from peers instead of banks.
The demand for resources facilitating these loans is up, and if you have the money to lend, it could mean a nice return on your investment.
There are a number of Web sites set up to facilitate loans to peers, whether you arrange them yourself or or through an intermediary.
Prosper’s service allows borrowers to post a request for a loan and the maximum interest rate they’re willing to pay, and lenders can bid on it.
The site itself is used to handle loan payment transactions and makes money by collecting a 3% fee on loans from borrowers and a 1% annual loan-servicing fee to lenders, the company says.
A Grey Area
Since peer-to-peer lending is technically an extension of credit, it’s still unclear how exactly it should be regulated.
The Securities and Exchange Commission shut down Prosper last year for breaking a rule that prohibits the offer or sale of securities without a registration statement or a valid exemption from registration. Prosper has since registered with the SEC and relaunched its site. In conjunction with the relaunch, Prosper raised the minimum credit score for borrowers to 640, according to The Wall Street Journal.
But what would happen if a site went out of business? You’d hope that, like when peer-to-peer loan facilitator Circle Lending was acquired by Virgin Money USA, the loans would be passed over to another company and not lost in the abyss.
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