Prosper.com and Lending Club Offering Peer-to-Peer Loans for Major Purchases

With unemployment floating between 9% and 10% and increasingly tight credit standards, banks remain very particular about who they will lend money to. As a result, many individuals looking to make major purchases have found themselves unable to get a personal loan, despite having reasonably good credit.

Two California-based lending companies, Prosper.com and Lending Club, hope to bring credit to those that have reasonably good credit and may have had a bad experience at a bank. Both Lending Club and Prosper.com allow people to take out loans for major purchases, including home repairs, vehicles and education. Prosper.com even has a one-year loan option which might be a great choice if you need to borrow some money on a short-term basis.

Getting a loan through a peer to peer lending company is a bit different than going down to the local bank and applying for a loan. Instead of your money coming from indeterminate sources at the bank, other people are providing the funds for your loan. As you make your payments through your peer to peer lending marketplace of choice, your funds are distributed back to the other people on the site that helped fund your loan.

Because your money is being funded by other people, rather than by a bank, you can often get a much better interest rate than you would on a credit card or through a personal loan at a bank. Borrowers with perfect credit can get interest rates as low as 7%. Some higher risk borrowers may be asked to pay as high as 15% or 17%, but the average interest rate that borrowers pay is between 9% and 10%. Like other loans, you’ll have to pay an origination fee to the service between 1% and 4% to cover their costs.

Many people have taken advantage of these services to cut the interest rates they are paying on credit card debt. Instead of paying variable interest rates as high as 29% to credit card companies, borrowers can move their debt into a fixed-rate loan with a lower interest rate which will be completely paid off over 3 or 5 years. Credit Card companies would like you to continue to make minimum payments on your credit card and keep you in debt forever, but with a fully-amortizing fixed-rate loan, you are guaranteed to get out of the debt if you make all of your payments. Neither website requires borrowers to have a specific reason, such as buying a car or a home, to take out a loan.

Lending Club and Prosper offer loans between $1,000 and $20,000 over terms that are either three years or five years in length. Those interested in taking out a loan through either service can visit Lending Club or Prosper’s websites.