| Private Online Personal Loan |
| By Credit Federal |
Published
12/27/2007
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Unsecured Loan
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Private online lenders compete with bank personal loans
For-profit, online personal loan lending is becoming more popular as more social lending marketplaces emerge. In addition to Prosper, private loans are now also offered by Zopa, Lending Club and Virgin Money. This gives consumers additional unsecured personal loan alternatives, particularly those people with bad credit scores who cannot get approved through a conventional bank, although their recent history reflects timely loan repayments.
Small, no collateral loans from private lenders trace their origins back to the 1970s. And now as the credit crunch makes it even harder for bad credit consumers and small business owners to get a loan, for-profit social lending may play a bigger role in financing small enterprises in the U.S. Most sites reported that between 20% to 30% of loans are for businesses; it is the second most common reason borrowers listed, after refinancing debt.
Although person-to-person direct lending is more convenient and potentially lucrative, it's not expected to replace banks or other established financial institutions. One main reason is because these private lenders lack the leverage of banks and cannot suffer as heavy of losses. Hence, they are not as capable up placing large sums of money into the hands of high risk borrowers. And; if borrowers repeat the default trend, these lenders may likewise clamp down on whom they will loan money to in order to reduce their risks.
Yet don't so quickly dismiss person-to-person lenders. They offer one feature that banks cannot, and that is the personal touch and not having to get multiple loan approvals from the loan officer, bank VP, President, etc. And though banks are tightening approval standards, private lenders are free to base each applicant upon his own merits.
Lending money is still a business, however, and lenders want profits. To improve their profitability, lenders spread their loan investments across many borrowers to reduce the risk.
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