If you have ever considered peer to peer lending, let me tell you about my experience and some lessons learned.
1. Know your credit score first
It is a huge waste of time checking what your rate will be, if you don’t know your own credit score going into these websites, or if you are not honest about what your FICO score truly is. If you search for loans under the assumption your credit score is 720, when it’s actually 670, what shows up will be loans that you can’t have.
I have credit cards that give me my FICO score for free each month, but with the creation of free websites such as creditkarma.com, there really is no reason to not know your score. I didn’t learn this recently, I always check my score before asking for credit. And if your score is below 640, you won’t qualify for many of these sites.
2. Income inflation
Don’t inflate your income thinking that you will receive better offers. Most places request either check stubs or tax returns to verify your income, so even padding it a little bit can change the terms of your loan offer, or worse, end up in a declined application. Again, a big waste of time. Some income requires certain types of documentation, like I had included my child support in my income, however, you can only do that if you have a court order showing the amount you receive each month. I had to edit my application.
2. These people work fast
I started my search at Lendingtree.com just looking around at what was out there. I hadn’t even fully formed the idea of a debt consolidation loan in my mind yet, and I hadn’t even heard of peer to peer lending. Some offers came up that looked great, and had worse terms than the credit cards I wanted to pay off. While I was still looking at my results, I got a call from one of the lenders. I was surprised how quickly your information gets sent off to these banks. The person calling me wanted to review my loan options, then said, “Sorry, it looks as though you don’t qualify. Keep us in mind for your future loan needs!” Just like that, they were gone. I also received a few emails immediately stating that I was not eligible. Most of these places are doing a soft inquiry on your credit, and once you try to process the application, they do a hard inquiry (the kind that hurts your FICO score) and make a final decision.
3. Don’t take the first offer
I fumbled the first loan offers I had received. I was trying to decide between Prosper and Lending Club, both had competitive rates, and good reviews if you check them out online. I had settled on the loan from Prosper, so I called Lending Club, and asked them to cancel my application. Then, when I spoke with Prosper, the change to my income (to remove the child support) had altered my application, it was cancelled and only after I cancelled it did I find out that they won’t offer you the same loan again. My next loan offer had a 2% increase to the APR, which made the Lending Club loan a better deal, the one I had just cancelled. I thought I would have to wait for 2 weeks for my loan applications to clear the system before applying again. Not ideal.
However the operator from Lending Club had given me a brilliant idea: I could reapply under a new email. It seems like cheating, but since she had suggested it, I gave it a try. My new loan offers didn’t look to great, so I tried again with another email. All of a sudden I had a loan offer that was better than the original offer I had planned to take from Prosper. This loan offered 6% less APR than my original Lending Club loan offer, and 3% less APR than the one from Prosper. I don’t understand why this works, but this is the best tip: If you aren’t thrilled with the offers you get, try again under a new email.
4. Read everything
This is not your end-user agreement with Apple, these are financial documents. Read everything. Depending on your location, you may receive slightly different loan documents, but read all of them. They tell you everything about the loan, including how much the loan origination fee will be (normally 5% of your loan) and the fact that they take this fee out of the amount you finance. For example, a $6,000 loan with a 36-month term would have an origination fee of $66.60. You’d receive loan proceeds of $5,933.40 (loan amount of $6,000 minus the $66.60 origination fee). Those documents will tell you if there is a penalty for paying your loan off early. Also, when your first payment will be due, and the method of payment. Some places have the payments deducted right from your bank account, some places charge a fee if you send in an actual paper check, and some places have grace periods of up to 15 days that you can be late on your loan.
I think if you follow these tips, you too can have a nice experience applying for and receiving a peer to peer loan. Always remember to never borrow more than you need, and make sure the loan payment will fit in your monthly budget. Comment below any tips you think I left out.