I don’t typically write first person stories about my own financial situation. However, I had a really positive experience with social lending. Although a lot of people have used peer-to-peer lending for both borrowing loans and investing money, there are still many people out there who don’t know if social lending is right for them. That’s why I thought I’d break from my traditional format to share my first person story about why social lending worked for me.
What is Social Lending?
Just in case you aren’t familiar with peer-to-peer lending yet, it’s basically a social option for borrowing and lending money. As a borrower, you create a profile explaining why you need a certain amount of loan money. Investors on the site can then choose to fund you. You pay a small interest fee for the loan, and the investors earn that interest for making the loan to you. The specifics of how the loan works, how many people fund you, and what interest rate you pay vary based on your creditworthiness and also based on which social lending site you choose to use.
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My Situation: Why I Needed a Loan
When you apply for a peer-to-peer loan, you have the opportunity to explain precisely why you need the loan. You also get the chance to explain why someone would want to take the chance on investing in you. Here’s the information I shared on my profile requesting loan assistance.
“I am a freelance writer / blogger who has worked independently for nearly ten years. I am highly responsible with my finances and have been able to consistently pay all of my bills on time in spite of my freelance status. In fact, at the end of 2008, I had paid off all of the credit card debt that I owed and started a savings account.
Unfortunately, I’ve come into a series of health problems this year. I do have health insurance but it’s not covering a large percentage of the bills that I have to pay. None of these health problems are ongoing. (They are things like an emergency removal of painful wisdom teeth, which cost several thousand dollars.) However, two things have occurred. First, I am having trouble paying the bills without entirely depleting my savings. And second, because of the recovery time for my conditions, I’ve been working less, which has reduced my income.
I do have the credit cards necessary to make these payments if needed but was hoping to get a better rate on a private loan since my credit card interest rates are high. I have a very strong history of loan repayment and I do have a steady income despite the fact that it’s been reduced due to the medical conditions.”
Why I Chose Social Lending
I chose to get a $10,000 loan through Lending Club a few years ago. Note that I chose this social lending site because it had the best offer for me at the time, but I don’t have enough experience with other popular peer to peer lending sites (like Prosper) to say for sure how it compares. The reasons that I opted to get this loan through a peer to peer lending site included:
- I had fairly solid credit, but it wasn’t good enough to qualify for a loan this high from a traditional source like my local bank.
- After poking around the site, I learned that the interest rate that was offered to me through the site was favorable compared to any other loan options that may have been available to me at the time (even for lower loan amounts than the $10,000 I was seeking).
- I liked the idea of being able to benefit other individuals through the loan by having my interest paid to them instead of to a large corporate institution.
How Social Lending Played Out For Me
I was successful in getting the loan that I needed. I was able to get a $10,000 loan at an interest rate below 9%. The length of the loan was supposed to be 3 years with monthly payments just over $300 per month. That was reasonable for me. The payments were made automatically from my checking account each month, but I received an email notification before the withdrawal took place so that I was able to make sure the account had enough money and would never be overdrawn.
When my health improved, I was able to get back to a normal work schedule and to save up the money to pay off the loan early. There was no penalty for doing this, and the process was really easy. The downfall for my social investors was that they made a bit less in interest than they may have anticipated, but they did make some interest and were repaid in full.
Peer-to-Peer Lending In My Future
Because of my positive experience as a borrower from a social lending club, I would definitely use this option if I needed a loan in the future. However, I would still take the time to compare the rates of this loan with other loan options just to make sure it was still financially the soundest choice. Although I have not been an investor in one of these sites, I’m highly interested in pursuing that option in the near future.
Do you have any experience with social lending either as a borrower or a lender? Share your experience in the comments, if you do!