Show ME the Money!!

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.

DEBT

No one ever wants to talk about debt, but it’s all that is on my mind this week, so I can’t really write about anything else. There have been a lot of things that have happened over the past two years, and never has it been as my husband and I thought it would be. Having lifted myself out of debt before, I knew all the warning signs as they came, I simply ignored them.

That’s right. I willfully ignored my bad spending habits and put my family into debt.

In my home, I control the finances. I have more experience than my husband, and better credit. I make the budget, and when we break from that budget, I have the final say. Therefore, I could regale you with stories of how the kids really needed gym shoes and I was supposed to get a payment that would take care of that bill before interest was charged, but I didn’t get paid, and I didn’t pay the card off, and now I’ve paid $100 for $60 shoes.

It’s embarrassing and disgraceful, but what would be worse would be if I stuck my head in the sand and did nothing about it. It would take until 2019 to pay off these bills and I put nearly a quarter of my income towards paying debts.

The thought occurred to me to take out a personal loan to get my family finances back on track. But as they say, you can’t cure debt with more debt. Taking this drastic step would require a level of commitment of which I’m not sure we are capable. It is hard to leave behind our devil-may-care attitude behind and head into a more spendthrift place. You see, if we take this loan, and don’t change our ways, we will be in the worst place possible. We cannot afford this loan payment and carry debt on our cards. We wouldn’t even be able to make the monthly minimum payments.

Therefore, the credit cards would need to be shredded. No, I’m not going to stick them in ice, I have very hot water at my house and could have that card out in no time. The cards would have to be destroyed to make sure that we couldn’t slip into our old ways and buy that shiny thing we wanted. We would become a cash only household, and that frightens me. It shouldn’t – but it does.

My first round with debt was in my 20’s. I receive credit offers in college and having access to magic money proved too great a responsibility. I charged up nights out in the bar, dinners with friends, movie tickets – you name it. Anything you weren’t supposed to use credit for, I did, and they didn’t even have cash back rewards back then!

By the time I was 25, I contacted an agency to get myself out of debt. I chose a debt management plan, which closed many of my accounts and I spent the rest of my 20’s building my credit back.

It worked! Then in 2011 I bought my own house, on my own, because my credit was so good. By the time I got married in 2013, I was in about $700 worth of debt. I didn’t like debt, since my experience had shown me how quickly it snowballed. I had a plan to pay it off by January 2014.

As it turned out, my husband was laid-off just after our wedding. (Nice wedding gift boss!) He found small jobs here and there, but he didn’t get back into full-time work before we had a baby in 2014. By then, it seemed like a good plan for him to just stay home and watch the baby while I worked, so we wouldn’t have to pay for daycare.

I love that my husband gets to stay home with my little one, and he loves it too, but it was a mistake. More accurately, our spending like he was days away from finding his next job was a mistake. Not only did I not pay off that $700, it rapidly ballooned to $7000! I took out a loan from my retirement plan to cover the debt, not wanting to go further. But we never changed our spending habits, and the effort was for naught as my credit cards continued to carry a balance from month to month.

Back in the spring, I sat my husband down and let him know how I had mishandled our finances. He had nothing but faith in me that I could turn it around, but as we entered the summer, our spending increased like never before. For the first time we had all the boys staying with us for the month of July and I found myself putting groceries on credit cards.

I knew we were in trouble. I let my husband know that soon, we wouldn’t even be able to cover the minimum payments. We had let it go to far. Continuing in this manner for even one more week could possibly sink us. And just like that, the spending stopped. Mind you it has only been 8 days, but we haven’t spent any money at all.

My husband asked how long it would be this way. Three years. Three years of paying for the follies of the past two. He has taken more hours at work, and I’m up for a promotion that would come with a nice raise. I’m also doing well selling our excess from the basement, of things we no longer use or need. That may help us pay it off sooner. I can’t explain how much more scary the debt is this time around. Last time, I only had myself to worry about. Now, with my whole family looking to me, I don’t want to let them down. If I had only said “No!” more to the things we couldn’t afford. That’s all water under the bridge now, and we have to move forward.

I’ll keep you updated on how this goes for us.