Sunday, January 27, 2008

WSJ: 4 tips for Prosper borrowers

The Wall Street Journal discusses peer to peer lending in an article published this weekend, Borrowing from Peers. The differences among Prosper, Zopa, Lending Club and Virgin Money are briefly discussed and then the author provides four tips for prospective borrowers.
  • Be realistic. It's important to know from the start how attractive a borrower you are and to set realistic interest-rate expectations, says Jean M. Garascia, associate analyst for Javelin Strategy & Research. The first time Ms. Rizzo asked for a loan on Prosper, for example, it didn't get funded because the proposed rate was too low for any lender to accept the risk.
  • Tell your story. Part of the intrigue of peer-to-peer sites is that lenders get to know who they are funding. In some models, explaining why the money is needed and giving some information about yourself can help an investor relate to your story -- and decide to lend to you.
  • Be patient. Unless a borrower is seeking a loan from an acquaintance, it might take time to get funded. "The demand for loans is much higher than the actual capital available," Mr. Garascia says. "Maybe you'll get funded in a day...or it may take longer than you were expecting."
  • Understand the terms. The loan's interest rate is important, but pay attention to the terms as well. Unlike credit-card debt, this loan must be paid back in a defined period. The consequences of defaulting on a peer-to-peer loan are the same for any loan -- often a ding to the borrower's credit history.

Globefunder was not mentioned in the WSJ article, but they do appear today in an article in Michigan's Mlive.com - Kalamazoo-based Online Lender Expands into Michigan. Here's an excerpt:

"Globefunder, the Kalamazoo-based peer-to-peer online lending company that was launched last October, is now licensed to do consumer lending in Michigan. The business, started by two former Greenleaf Trust executives, Brian Mullally and John Schoolman, and Ben Decio, chief of staff for an Elkhart, Ind.-based maker of recreational vehicles and modular housing, is based at 200 E. Michigan Ave. in downtown Kalamazoo. It was already licensed and operating in 13 states -- Florida, Texas, Georgia, Hawaii, Indiana, Missouri, Louisiana, New Jersey, New Mexico, New York, Oregon, Utah and Wyoming -- before clearing regulatory hurdles and adding Michigan this past week. At www.globefunder.com, the business uses proprietary technology to offer loans from $2,500 to $25,000 to borrowers looking for reduced-interest-rate loans. It offers investors an opportunity to reap more substantial returns on typically short-term transactions. Peer-to-peer online lending has been drawing a lot of interest because industry observers say it has the potential to allow anyone with a computer to apply for and be considered for loans from people who have money to invest."

Peer to peer lending is also mentioned today in an article about recent stock market fluctuations at the UK Times Online. "Another offbeat option attracting serious consideration is Zopa, the US-backed website that brings lenders and borrowers together with a much smaller cut for the middleman," writes William Kay. Read the rest of the article at the UK Times Online.

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