From finance.yahoo.com -
When I realized I was paying off six different credit cards and not getting anywhere, I decided to consolidate my debt, like millions of other Americans.
I visited my local bank, asked for a $15,000 loan but was offered an interest rate higher than my cards were charging.
So I looked into online lenders and discovered a growing part of the sharing economy known as peer-to-peer lending, a system in which a group of investors pool money to loan to people like me.
The first company I went to, Upstart, was willing to lend me money but again, the interest rate was too high. Then I went to Prosper, the second-largest lender in the industry. Prosper found investors in my loan in two days and I had my money in five.
I never visited a branch or met a loan officer. And the interest rate of less than 9 percent beat the 13 percent offered by my brick-and-mortar bank.
After borrowing the money, I wanted to know more. Who were these "peers" and why did they think I was such a good credit risk?
The answer took me deep into an...
♦ AP reporter Ken Sweet caught some heat from a few commenters on the Yahoo blog post for choosing to borrow through Prosper Marketplace to consolidate credit card debt. Although some of them felt like he should have never been in debt, or even worse, in debt from using 6 credit cards, the fact remains that his story is not unusual. Tons of people need debt consolidation help and it helps to make the public aware of options outside of the traditional banking system. I give Ken much respect for putting his financial business in front of the world so that others can learn about something new and helpful. But of course, admissions of debt always brings out the "perfect" people and the accompanying high horse they rode in on.
♦ A note of interest that caught my attention was the fact that loan interest for borrowers actually lowered over the last 2 years with Prosper. With the influx of p2p loan investors, it seems to have had a positive effect for borrowers seeking low-interest personal and business loans.
♦ It was noted that p2p borrowers do have a level of protection when dealing with the two major U.S. peer-to-peer lenders, Prosper and Lending Club. Being that the two lending platforms process their loans through a 3rd party bank, the p2p loans are protected under the Truth in Lending Act.
♦ Peer-to-peer investors should feel good to know that Prosper and Lending Club had to be registered with regulators and provide disclosures to investors about where their money was going, so there is transparency in the p2p lending sector. But, the fact remains that the p2p lending industry has not been hit with a recession since 2008 and the effects of a downturn in the economy could possibly go sour for investors. If the economy tanks and loans start to default, the only recourse investors will have is to trust that debt collectors can retrieve the funds because peer-to-peer loans are unsecured.