b&b104 What is peer to peer lending?
Peer to Peer (or p2p) lending is a site that has sprung up since the meltdown. Banks are much more careful about who they give loans to, but people still need them. On one side, there are lenders looking to make more money than they would be able to in stocks, and on the other side borrowers looking to spend less money than they would taking out large amounts on their credit cards. The returns are so appealing that big investment firms have become lenders, and the demand for debt is higher than the supply of debt. Once that happens, those who are less likely to pay back debt–sub-prime borrowers–start getting loans. Think, exactly what happened in the mortgage crisis. Listen for the full story.
Pam: As a borrower, you get to reduce your interest rate by 7-10%, fix your payment and say “Oh, the debt is gonna be gone in 5 years, or 3 years” or whatever time period you choose, and then on the other side of it is the investor. Instead of getting less than 1% at a savings account, you’re getting paid 5-6%…every month as long as they borrower pays you back.
Dyalekt: Debt is so exploitable.
Pam: When you get institutional investors involved, like you were saying, and you have this bulk of money, they buy up large chunks, and then one day there are no more chunks to buy in the desirable, or “prime” should I say, loans, and so the direction that it seems to be going in is that perhaps lending club will open their floodgates, or their loangates, to people who maybe are sub-prime borrowers.
Pam: You’re still investing, so it’s not like you can’t lose all your money.
Pam: The other interesting thing about peer to peer lending is you’d get paid every single month, so you would actually get that interest and collect it every single month.
Pam: Are you, as an investor, perpetuating a cycle of debt?
Pam: As a borrower you get this money in days instead of weeks or months…and they’re not collateralized so you’re not putting anything against this.
Pam: A lot of banks have actually loosened their lending purses and you’re seeing more competitive rates because of these marketplaces that are opening up, like peer to peer lending.
Pam: The psychological risk, or I guess the habitual risk, is you pay off your credit cards with this debt consolidation, and then your credit cards are clear and you can potentially go back into credit card debt.
Dyalekt: What’s funny [with red lining] is when things remain faceless like this, and again when you don’t know what dreams people are investing in…it doesn’t sound that unethical.