Finance Wanted.

By Jerry Warner

With the advent of peer-to-peer lending websites such as Prosper.com, it may seem as though a new era in online lending is beginning. As with any loan, however, it's important that you take the time to look into the advantages and disadvantages of this type of loan so as to make sure that you know exactly where your money is coming from and what will be expected of you when it comes time to pay it back. Even though the loan doesn't come from a bank of major lender, a peer-to-peer loan is still a debt and the repayment of such a loan should be considered a serious matter.

Is it right for you?

Before you start looking at whether peer-to-peer lending is right for you, you should first make sure that you understand how this type of lending service works. After creating an account with the lending site, you can either make a listing for a loan that you need or you can search the listings and find loans that you are willing to contribute to.

Loan requesters list the amount that they want to borrow, the interest rates that they're willing to pay, what the loan will be used for, and a little bit about themselves in order to show why they need the money. Loan contributors don't have to supply the full amount of the loan, just the portion that they're willing to pay. Multiple contributors can pay into a single loan, and once the requested amount has been reached then the borrower will have the full loan deposited into their checking or savings account.

Advantages

One of the main advantages of peer-to-peer lending is the fact that it doesn't require a bank or other major lending institution to be involved. The money that you borrow is supplied by private individuals just like yourself, who fund part or all of your loan and who receive interest from your loan payments. Of course, you don't have to have direct contact with any of the individuals who contribute to your loan... the peer-to-peer lending service acts as a proxy, with the site handling all loan payments with direct deposits and withdrawals. This is how multiple lenders can be used to fill your loan needs, with the payments that are automatically withdrawn from your bank account being divided up among them each month.

It's even possible to make money through a peer-to-peer lending service, provided that you have the money to invest into it. You'll be making interest on any money that you lend, minus any service fees that are taken out by the service itself. Unfortunately, unless you have a decent amount that you're able to invest into funding loans the amount that you make likely won't be significant.

Disadvantages

This type of lending isn't without its disadvantages, however. Since the money that you borrow isn't supplied by a bank or other federally-insured lender, in the rare event that there was some problem then you may not be able to recover your losses. Additionally, if you aren't able to get enough people willing to invest in your loan then you might not be able to receive the entire amount that you need.

Because of the different advantages and disadvantages, peer-to-peer lending isn't right for everyone. Some people may have good experiences with this sort of loan, especially if they are only wanting to borrow a small amount or haven't been able to get a loan elsewhere. Those individuals who have better credit or who have equity that they can use to secure a loan would likely be better served with a more traditional loan, however.

Jerry Warner writes general finance and loan articles for the Bad Credit Loans Online website at http://www.badcreditloansonline.co.uk