Personal loans: the Growth of Peer to Peer Lending

It has not been simple, but peer-to-peer lending has grown beyond all odds to be one of the fastest expanding lending investment in the financial market today. As demonstrated by two key players in the business, Lending Club and Prosper, person-to-person lending also known as p2p lending has shown a remarkable growth since 2007. Despite going through a time consuming scrutiny by the Securities and Exchange Commission- SEC back in 2008, these two companies have clearly shown that there is great potential in the peer-to-peer lending.

But what has made peer to peer lending a popular investment in today’s highly volatile lending industry? The ability to earn double digit returns from lending is one reason why low interest rates investors are seeking for alternative lending in p2p investment. With returns ranging from 6 to 10 percent or even higher, investors are making good returns in their investment.

After skepticism on the way in which person-to-person lending could thrive amidst the risk associated with the lending, institutional investors are now joining the community and they are channeling in money in both Prosper and Lending Club, the two pioneers of p2p lending.

It is estimated that there is over $100 million of investment by institutions at Lending Club and the amount is expected to increase in 2013. This gives borrowers and investors more confidence in lending practices. Another reason which may have led to fast growth of these kinds of loan facilities is that consumers want to get out of credit card debt. Credit card debt continues to be a burden for many people and with the financial institutions being reluctant to offer credit facilities to people with bad credit, peer-to-peer lending remains a viable option for borrower.

One of the most common types of borrowing in both Prosper and Lending Club is debt consolidation. After experiencing high penalties in form of interest rates on credit card balances owing to late payments, cardholders are not finding it more convenient to consolidate their loans for a cheaper low interest loan in peer-to-peer lending.

Considering that credit card debt may attract interest rates to the highs of 35 percent APR, consumers can get a refinancing option with person-to-person lending. A borrower could get a 3 years peer-to-peer loan with an interest rate of about 10 percent and be able to pay off the high interest credit card loans within a relatively short period of time.

Banks are still tight in their lending and this has locked many borrowers out of borrowing from these institutions. Individuals and small businesses are finding it difficult to obtain loans from conventional banks and this gives then an option to go for the peer-to-peer lending. The credibility of person-to-person lending has grown substantially meaning that consumers and investors are gaining confidence with this form of lending.

This is further substantiated by the rapid growth that has seen the lending business hit a record high of $1 billion in 2012. If you are struggling with a credit card debt, you may consider p2p lending as a viable way of consolidating your debt.