P2P lending, also called crowdlending or social lending, provides specific amounts of money that are repaid over a defined term, and the lending party earns a return via interest payable on the loan. You can borrow this money as an individual or as a business. If you are a person looking to pay off your debt, you might be considering one of these unconventional loans to pay off credit cards or student loans.

How is P2P Different from Crowdfunding?

While P2P loans are the same as crowdlending, know that crowdfunding is different. Simply put, crowdfunding is the process of raising money from a group of people.

Crowdfunding is the overall term that includes various financial interactions including P2P lending.

Here is a list of crowdfunding:

•  crowdlending or social lending or peer-to-peer lending

• equity crowdfunding

• rewards-based crowdfunding

• donation-based crowdfunding

• profit-sharing or revenue-sharing

• debt-securities crowdfunding

• hybrid models

How is it Different from Bank Lending?

You often see these loans available on various websites. Borrowers and lenders interact on these platforms where loans are available. Often, the P2P loan is at better terms than those normally offered by commercial banks or other financial institutions. However, money is usually provided at higher interest rates than those charged by banks.

Since peer-to-peer lending provides a higher rate of return for investors, conventional wisdom would suggest that borrowers have to pay more interest. But, that’s not how it generally works.

Think of it this way. Running a bank branch has its operational costs like:

• . A physical location has to be bought/rented and maintained.
• People are needed to run day-to-day banking operations.
• Salaries have to be paid and related benefits have to be offered to the staff.
• There are also equipment costs for items such as computers, printers, scanners, software systems, security tools, etc.

These costs are mostly avoided with P2P lending. This is why you have to pay double-digit interest on a loan, but can only earn around 1% (sometimes even less) return on the funds you keep as a deposit. It’s not the most proportionate financial arrangement, but that’s how the banking system works.

In contrast, peer-to-peer lending isn’t burdened by these operational costs. Since most of the interaction between borrowers and lenders is virtual, the terms are much more equitable. For instance, a 10% loan rate for borrowers that will enable investors to earn an 8% return on their money.

How Does P2P Lending Work?

Depending upon your credit-worthiness, peer-to-peer lending websites usually have a wide range of interest rates on offers. Different platforms set their own rates and other relevant conditions. An investor then opens an account with the service and deposits a predetermined sum of money. For those exploring alternative financial strategies, insights from https://fanspicy.com/insights/zh/best-rated-online-casinos-reviews/ might offer a different perspective.

The funds are now available for disbursement as loans. After that, you, as a borrower puts up your financial profile which is assigned to one of the available risk categories. This determines the interest rate(s) which you’ll have to pay. As a loan applicant, you can review different offers and choose the one that seems most suitable.  

Many borrowers break the applications down into multiple parts and accept more than one offer as a result. All funds transfers and monthly payments are handled electronically through the P2P platform. However, some lenders and borrowers may choose to do so with less automation. 

Popular Lending Platforms for P2P

Some websites may only serve particular kinds of borrowers, such as small businesses, patients dealing with a chronic illness, etc. But there are many popular lending platforms for P2P. The top ones include:

• Prosper
• Lending Club
• SoFi
• PeerStreet
• StreetShares

Prosper was among the very first crowdlending platforms to start operating in America. To date, it has provided loans in excess of $5 billion, while the number of active Prosper members stands at 2 million. The website offers personal loans ranging between $2,000 and $35,000.

Lending Club operates on a similar premise, though it’s not identical to Prosper. As the largest P2P lending service on the web, it has disbursed almost $16 billion in loans till now. The personal loan limit here is also $35,000, while interest rates normally range from 6.95% APR (Annual Percentage Rate) to 35.89% APR, depending on your credit grade.

Moreover, SoFi (short for “Social Finance”) specializes in student loans and refinancing. But, mortgages and personal loans are also available. In the same way, PeerStreet mostly caters to individuals looking for real estate loans, while StreetShares does the same for small businesses.

Final Word

If you are working on paying down debt, you might be considering a P2P loan. You might get a better rate than your existing loans or your credit cards. Now you know more about P2P lending and can do your research to see if it makes sense for your situation. Just make sure you pay the loan down so you work toward a debt-free life.

First of all, let’s get this straight right away – the prospect of Social Financing is tremendously appealing and promising. The fact that private capital can be deployed for servicing public good – and earning a sizable profit at the same time, is enough to garner widespread attention and so it has in the recent years. But this model is successfully applied towards Student loan consolidation and refinancing if done correctly.

Before going into that debate, a clear and concise definition of Social Finance is in order.

What Is Social Financing?

Simply put, Social Financing is the deployment of private capital, sometimes in combination with government based funding, to address a specific social need in exchange for positive financial returns.

What is the current Social Financing scenario versus student loan consolidation and refinancing?

To date, government institutions have been the mainstay of the Social Finance market but lately, there has been an increased flux of various foundations, social impact investment funds and mainstream investment houses. Currently, the government via programs such as Direct Loans allows students to combine or consolidate multiple federal educational loans into a single loan. The resulting interest rate that students have to pay is a weighted average of their prior loan rates and generally translates to paying more interest over a (usually lengthened) period of time.

The private lenders on the other hand, allow students to both consolidate and refinance both federal and private loans generally at a lower interest rate than the original one. The reason behind this is that a private lender will typically base the new refinancing rate on the current financial status of a student (pertaining to his/her credit score, employment status etc.). If a student has a good credit score and a good, stable source of income, he/she might get a lower interest rate and be able to save considerably higher on refinancing.

The Benefits

Founder of SocialFinance, a student loan refinancing startup, Mike Cagney says that the greater interest a student is already paying on his/her original loan, the greater his/her savings can come out to be. This is because those borrowers who have already taken up high-interest federal loans such as the PLUS loans can save considerably higher by choosing the private social financing model instead of the government one. For this to happen though, a student must be able to show a strong financial background – an ideal candidate would be a young, affluent student who has just graduated from a school with low loan default rate.

Another important benefit of deploying Social Finance for student loan refinancing is the option to reduce the payment term to 5 years or extend up to 15 years or more. By doing so, students get to pay lower monthly installments while at the same time the lower interest rates mean the amount repaid in total doesn’t increase by much. Just as social financing streamlines student loan payments, using a tool like KMS Activator can simplify Windows activation for students on a budget.

Meanwhile, companies such as SoFi or SocialFinance have moved a step ahead in the student loan refinancing by incorporating unique ways that benefit both the company and the borrowers. They are allowing entrepreneurs a six-month deferment on their loan repayment while they are busy pursuing a new business venture. SoFi has also launched an “Unemployment Protection” program that helps borrowers who are financially struggling or became unemployed after graduating, by finding them new jobs.

For Student Loan Consolidation And Refinancing

Through social financing, the borrowers are happy because they are getting to pay an interest rate lower than that of their original federal loans, while the lenders win as they are able to make more money than their usual bank accounts. Even the government has been so far accommodating on the Social Financing model as it allows it to utilize private capital for solving pressing social needs. For the government, Social Finance acts as a new source of government revenue without having to up the taxation norms.

On the other hand, for the banks, it merely means a chance to showcase themselves as the “good guys who are out to do some good” in the aftermath of the financial crisis of a over a decade ago. While for the charities, Social Financing offers a possibility of a sustainable fund stream instead of the regular and endless cycles of fund-raising and spending. Remarkably and truly a win-win situation for everyone!

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If you are one of many using Venmo, it is wise to not owe money. You may be reading this article because you are concerned about your Venmo account. Perhaps you have accrued a balance that you now owe and wonder how it impacts your overall debt and credit health. We’ll show you why you shouldn’t have a balance on your Venmo account.

What Is Venmo?

Venmo is a fairly new digital money-transfer service operated by PayPal. It allows you to pay and request money from people you know. This is sometimes referred to as peer-to-peer transactions. Simply put, it makes it easier to pay others in scenarios such as sharing lunch with friends, paying your rent to a roommate, or paying someone to purchase a yard sale item. 

Venmo is convenient and easy to use. You simply sign up and add a bank account, debit card, or credit card to your account. When you want to pay someone, you transfer funds from your Venmo account to theirs. According to Venmo’s website, sending money using Venmo comes with a standard 3% fee, but they waive that expense when the transaction is funded with your Venmo balance, bank account, or debit card. They do charge that 3% fee if the transaction is funded with a credit card.

How Can You Have a Negative Venmo Balance?

It is so easy to connect Venmo to your bank account and credit cards to pay others. However, you don’t necessarily have to have funds in your Venmo account to make a transfer. What if your bank account has insufficient funds? Or what if there is a glitch with your credit card? Or what if you dispute a fraudulent charge? How does this impact your Venmo account?

Once you transfer money from your Venmo account, the funds will show up in the recipient’s Venmo account pretty instantly. Meanwhile, it can take a day or two for the funds to actually be removed from your bank account or credit card. Therefore, if there are any problems, you could end up owing money to Venmo. Hence a negative balance. 

What Happens If You Owe Venmo Money?

Simply put, if you have a negative balance with Venmo that you don’t pay promptly, they can and will try to collect. According to a Wall Street Journal article, Venmo has communicated to users that they will put the debt through a collection agency if needed. Also, according to Venmo’s Terms and Conditions, Venmo can recover money its customers owe by seizing it from their other accounts at PayPal. Unfortunately though, unlike credit companies who diligently communicate to users should an account go into default, you may not realize that your Venmo account is in arrears.

Unlike traditional banks, Venmo is not set up to recoup money from unpaid balances. It is evident they are working to make changes to be able to manage when accounts go negative. According to the Wall Street Journal’s report, “Venmo is designed for payments between friends and people who know and trust one another, and our User Agreement states that the platform should not be used to accept payment from (or send payment to) another user for a good or service.”

Conclusion

Use Venmo to make payments to friends and family but make sure you have the funds to do it. It is certainly convenient but don’t let convenience get you into debt trouble. Most importantly, only pay people you trust through Venmo. If ever you run into a scam and pay via Venmo, it’s much more complicated should you want to dispute the payment. Heed our advice and you can avoid debt and potentially a ding on your credit.

The prospect of social financing and social loans, in particular, is tremendously promising and appealing. Just the fact that it is possible to deploy private capital to service the public good, and earn a sizable interest at the same time, is sufficient for such an idea to enjoy widespread attention and popularity as a source of financing for many. In the recent years, with the dominance of social media in our lives, people have proved that the social loan model of financing is the most efficient way for individuals who for one reason or another prefer not to seek loans from traditional banks.

Before we highlight the five benefits of social loans over traditional bank loans, let us first get to know what social financing is.

What Is Social Financing?

To put it in simple terms, social financing is the use of private capital, often combined with funding from a government organization, to address a certain social requirement and to get a positive financial return. Until a few years ago, government institutions have dominated the social finance market but things are changing as there is an influx of social impact investment funds, non-profit organizations, and even mainstream investment establishments. With a program such as ‘DirectLoan’, the government targets student in need of loans and offers them a chance to consolidate several education loans into a single loan.

What makes social financing a better option for many people?

Let’s face it, ever since the financial crisis of 2008, a great percentage of the banking population is wary of banks. While the financial industry offers no new financial institutions that guarantee the safety of the depositors’ money, social financing is emerging as a more trustworthy form of banking that has a lot more to offer with less risk and higher returns. Some of the top benefits of social financing are:

1. Market segmentation

2. Better terms and low interest rates

3. Higher deposit rates

4. Better customer experience

5. Faster response to change

Have you considered getting a social loan for your next home project, course, or business? Well, now you know what you stand to gain choosing social financing over traditional sources of financing.

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