What is Social Lending?
Ever since the invention of credit cards, the issuers are aggressively looking for ways to pursue new borrowers and urged old borrowers to charge more. Almost every mailbox is filled with offers and rewards for getting those cards out of your wallets and use them.
To achieve this goal every issuer tries to outdo the other by offering attractive low rates on balance transfers and high limits of credit. However, with the onset of recession most card issuers are facing more and more losses. During the past few months, major credit card issuers have pulled back their new credit cards, raise in interest rates, and close accounts - even for their most trust worthy borrowers.
Another new form of lender has stepped in where most credit card companies fear to tread. This new form is known as the Social Lender. The term refers to the peer-to-peer lending. In this process the lender has a choice over who will use his or her money.
Under social lending, investors place their funds in a mutual fund, which mainly operated by the National Retail bank. The borrowers who want to use these funds may apply through the website for a fixed-rate, fixed-payment loan. Usually, the payable period of this loan is within 1 to 3 years. Borrowers are supposed to have a minimum credit score of 660. Even the interest rates of these loans are as low as 9.6%. But the best fact about social lending is that the approval is almost instant, and money can be in the borrowers’ hands within 1 or 2 days.
Another interesting feature about social lending is that some sites related to social lending accept lenders who wish to invest a mere $20. As a result almost anyone can invest in social lending. Some of the lending sites is directly modeled after sites such as Facebook and eBay. This allow lenders to choose loans, which they’d like to fund, and bid on those loans at interest rates they’re willing to accept.
Over the years, social lending has also extended to student loans. However, most lenders recommend students to first apply for federal loans, and then use private lenders as an alternative option.