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Person-to-Person Lending

With today's lenders becoming more and more stringent, Person-to-Person Lending (also known as peer to peer lending, p2p lending, p-t-p lending, etc) is becoming increasingly popular. Here is how it works:

You sign up to a marketplace like Prosper.com. You give them some personal information regarding your current financial situation; allow them to do a credit report, etc.
You post a request for a loan. In this request, you specify how much money you need (up to $25,000), and your desired interest rate. Other users can see your request, credit profile and current financial situation.
A whole bunch of investors will fund your loan. Each investor typically puts down $50, but the marketplace will automatically piece the whole thing together and deposit the money into your bank account.
You pay the loan back over the next 3 years. If you miss payments, you get a fine, and if miss too many payments, they send the loan to the collection agency and leave a bad mark on your credit report.

This is an excellent resource for people who cannot qualify for traditional lending. Everything is secure and safe. Your identity is never revealed to the investors, so you don't have to worry about someone breaking your legs if you default. This doesn't mean you shouldn't make your payments. If you default, it will still leave a bad mark on your record and make it even more difficult for you to borrow money again.

If you have some extra cash, Person-to-Person Lending can be a great investment vehicle as well. You can simply deposit money, select to have your money automatically invested, choose a risk level then allow people to directly borrow from you. Since you can put as low as $50 to each loan, you can be well diversified so that one faulty loan won't wipe you out.

The great thing about Person-to-Person Lending is that it cuts out the middle man. Traditionally, its Person-to-Bank-to-Person lending, sometimes even "Person - to - Bank - to - Bank - to - Bank - to - Person" lending, so you can see how each middleman takes a little more of the cut, increasing the cost to the borrower and decreasing the return to the investor.

As with any loan, make sure you use Person-to-Person lending responsibly. Be sure that you can afford the monthly payment easily before going out and getting the loan. Using this instrument successfully can help your financial situation tremendously; however using it irresponsibly can greatly worsen your financial troubles.

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