March 3rd, 2010
Review: Prosper’s Talk About The Taboo Campaign
If people will divulge the ups and downs of their love life via Facebook and Tweet about their breakfast, Prosper’s Talk About The Taboo campaign hopes America will be as eager to open up and talk about what’s in their wallets.
Prosper, a peer-to-peer lending site, boldly goes where financial companies haven’t ventured before to bring taboo topics about personal finance into consumers’ everyday conversations.
January 18th, 2010
Review: Debt Consolidation Loans with Lending Club
Lending Club’s debt consolidation loans could be your best plan to reducing your debt. Nearly 60% of Lending Club borrowers using the site to consolidate debt or pay off their credit card. Lending Club uses a peer-to-peer lending model (P2P lending) to facilitate loans online between consumer lenders and consumer borrowers without the need of a traditional lender or bank.
What makes P2P-facilitated loans such an intriguing alternative to typical debt consolidation options? For a prime borrower, Lending Club offers lower interest rates than a bank, is more credible than debt consolidation companies, and more accessible than 0% APR balance transfer credit cards (which are getting harder and harder to acquire). Plus, if you participate in Lending Club’s DebtBuster Challenge promotion running until the end of January, you score a Lending Club care package with free merchandise.
Why It’s Worth It
The no-hassle online application enables you to find out quickly and for free what interest rate you qualify for. Their low, fixed interest rate is competitive in the market and starts at 7.89%. Lending Club’s standard, 3-year loan term keeps monthly payments manageable while maintaining a reasonably short loan life that won’t overwhelm you in long-term interest payments. Another plus is that the interest rate will never change throughout the term of your loan, unlike the variable rates of credit cards. There is no prepayment penalty if you pay off the loan sooner than 3 years, which some lenders will charge. Also, the automatic payment process deducst monthly from your checking account so staying on the road to debt reduction is a breeze.
The Catch
In order to secure a loan through Lending Club, good credit is a must. Given the nature of P2P lending, Lending Club has strict borrower qualifications to safeguard against default. Criteria for borrowers include a minimum FICO score of 660, a debt-to-income ratio below 25%, no recent delinquencies, bankruptcies, and charge-offs, no more than 10 inquiries on credit report in the last 6 months, at least 3 credit accounts of which 2 are open, and minimum 3 years credit history. Additionally, Lending Club sets borrowers’ interest rate based on their credit history, credit score, and loan amount; prime borrowers definitely have an edge in approval and better interest rate offers. Finally, there is a loan processing fee that ranges 1.25%-4.5%, depending on the borrower’s credit standing, which will be deducted from the loan amount.
Ditching That Debt Now
If you are in great credit standing and considering debt consolidation, Lending Club is worth looking into. Another alternative is Prosper, another P2P lending site with different borrower qualifications and uses a eBay-like bidding process to determine the loan’s interest rate. P2P loans as a debt reduction strategy has all the incentive you need, with Lending Club’s DebtBuster freebies and better interest rates, to get yourself on the path to debt freedom.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
October 19th, 2009
Where To Save or Invest Your Extra Money
Having extra money set aside can be a real lifesaver later on in life should you ever run into a financial emergency, want to put a down payment on a home, start your child’s college fund, or start your own business. Here are some saving and investing opportunities that will make the most of any amount of spare money, from your pocket change to your golden nest egg .
If you have a $100…
Saved up a few hundred? Open a high-yield online savings account that will allow you to earn the highest interest on your sitting money. Our top picks that do not require a minimum balance include Ally Bank’s online savings account with 1.70% yield, HSBC Direct‘s 1.35% APY, and ING Direct’s Orange Savings with 1.30% APY. Or you can go to MoneyAisle to compare APY rates yourself.
Tip: Be on the lookout for any minimum deposits or minimum balances that some high-yield accounts require that may make you ineligible for stashing your money there.
If you have $1000…
If you don’t plan to touch your money for a period of time, a Certificate of Deposit (CD) might be a good place for your money’s safe-keeping. CDs offer a higher interest rate 1 to 2 percentage points higher than savings accounts. What’s the catch? For the term of your CD (anywhere from 9 months to a few years), you cannot withdraw or deposit additional money or you will pay a penalty. If you are confident you won’t be itching for your money, shop for CDs according to their life span, minimum deposit, and rate—1.75% APY on an 18 month CD at Citibank, 2.25% APY on a 24 month CD at American Express, or a 2.75% APY for a 3 year CD at Discover.
Tip: The 12 month 2.00% APY CD with Discover offers no-penalty access and no-fee early withdrawal, which is a good option in a time of job insecurity and recession.
If you have a $10,000…
Wall Street’s encouraging market rally maintaining over 10,000 points make now a promising opportunity to invest in stocks and potentially reap big rewards. Whether you are a first-timer or a trading veteran, $10,000 is a good investment towards a few top-notch stock funds or to diversify your stock portfolio. Online trading webistes like TD Ameritrade, TradeKing, Zecco, and ShareBuilder offer online convenience and low cost per trade that makes it easy to invest your money.
Tip: Good news for new traders: both TradeKing and ShareBuilder are offering a bonus to new accounts.
If you want to do a good deed…
An alternative place to put your savings is investing in a peer-to-peer loan or microloan. While this may not pad your bank account as much as the above options, the pay-off is that you this alternative to traditional banks helps other people and supports a good cause. Both Prosper and Lending Club allow you to choose who you want to help finance through small, personal loans. Kiva, a microloan lending platform, connects you to third-world entrepreneurs to help finance projects for impoverished communities.
Tip: P2P sites like Prosper and Lending Club offer great 7%-13% estimated returns for lenders.
Put that extra cash where it belongs
Finding the right place to save or invest extra cash will pay off later as interest rates continue to drop, jobs start to stabilize, stock markets keep surging, and your money will be financially fit for an economic boom.
July 24th, 2009
Prosper Returns To Upgrade The Peer-to-Peer Lending Space
P2P lending marketplace Prosper began lending again on July 13 with the green light from the Security and Exchange Commission.
Originally launched in February 2006, Prosper was the first auction platform, matching prospective lenders and borrowers by allowing the final rate to be established essentially by what lenders will pay. In October 2008, the SEC halted Prospers operations because federal law prohibits the sale or offer of securities without the company registering with the regulators.
Prosper came back a healthier, more lender-friendly marketplace with key enhancements for borrowers and lenders alike including:
- Lender: A minimum credit score for borrowers from 520 to 640 and capped the loan request to $25,000 for a three year fixed rate loan.
- Lender: Added onto the already existing borrower profile information, which details past loan performance as well as credit files, is a Prosper Rating that ranges from AA- HR and represents a loss rate range. The Prosper Rating will be shown in the listing along with an estimated loss rate and credit score range (20 points, down from 40 points).
- Lender and Borrower: Lowered minimum bid requirement from $50 to $25. This helps lenders to diversify their loan portfolio.
- Lender: Better lending with a “hard bid floor” for each loan listing that sets the minimum interest rate a lender can bid; this helps lenders assess the risk of the loan and price it more appropriately.
- Lender: Now lenders can sell their Prosper Loans in a new secondary market, Foliofn. This gives lenders more liquidity with their Notes if they need access to the funds before the loan is fully paid off.
Currently, Prosper can facilitate P2P lending in 16 states including California, Illinios, and New York, and is working through each state’s regulatory process to allow lending nationwide.
Prosper is the first Internet auction-based lender approved by the SEC. Unlike competitor P2P lender Lending Club, where fixed interest rates are set according to Lending Club’s base rate plus Adjustment for Risk and Volatility, investors at Prosper agree to fund a borrower without knowing what the final interest rate will be. Other major player Loanio imitates Prosper’s auction platform and unsecured rates, but has currently suspended its business pending registration with the SEC.
Despite the 9 month setback, Prosper seems to be on its way back to the top ranking in P2P websites. Prosper has more than 840,000 members and funded an estimated $178 million in personal loans. Their comeback arrives not a second too soon, providing consumers an alternative to big banks and reviving hope that consumers can still put their money to work despite the current dry spell in the credit markets. Looks like alternatives to investing, without the bank or broker middleman, can be, well, prosperous.
April 24th, 2009
People Capital Website Review
People Capital is a new peer to peer private student loan service that evaluates students based on characteristics, rather than relying only on a credit score. This makes sense since most college students do not have an established credit history. People Capital utilizes a scoring system called Human Capital Score, which was built and developed by University of Pennsylvania’s Wharton School in order to provide lenders with the potential earning power of each student.
The Human Capital Score takes into account your credit, and then blends that with other metrics such as GPA, SAT/ACT test scores, college, and major to predict your future earnings. This score then allows lenders to more accurately determine how much money to lend to prospective borrowers. You can calculate your Human Capital Score online, so I took the bait and ran my Human Capital Score using a few different scenarios.
Using my actual high school GPA, SAT scores and college information, it was surprisingly accurate in estimating my salary along a 10 year timeframe. I changed my college to a community college, and my salary dropped nearly 25%, as well as my score dropping from 9 to a 7 (max score is 10).
The site is still in beta and you are not able to complete an investment online yet. The site currently has a lot of good information on social lending and how People Capital intends to change educational lending. They are targeting being able to fund and transact funding for the fall semester of this year. This is very interesting stuff; People Capital is taking the Prosper/Lending Club model and applying it to student loans.
It will be interesting to see how these loans perform in comparison to the traditional student loans. Unfortunately, with payback terms on student loans averaging 15 years, it’s going to be a few years before you can fully evaluate its ability to provide more insightful ways for lenders to valuate loans. We will check back in once they are actively lending to take another look at the website and its offerings.
