I have long been a proponent of P2P or peer to peer lending. When this form of lending made its debut on the lending scene it was hailed as the end of modern lending and an alternative to big banking. P2P lending had succeeded in cutting out the middleman and providing borrowers with better rates. Borrowers and lenders both connected together on peer to peer lending sites without the middleman in the way, direct lending with better rates. This was good for both the lender and the borrower, since even lenders used to loose money to middlemen and overhead.
Yet things have changed today. The banks have grown tired of losing their slice of the pie so they too have entered into the world of peer to peer lending. Big banks now have flooded the popular peer to peer lending sites such as Lending Club and Prosper. Small investors are having a harder time on peer to peer networks making loans, being cut out by big banking.
What this means is many of the mom and pop lenders and smaller private lenders have moved on from P2P lending. This has has an effect on interest rates. Once upon a time it was common and easy to get very attractive rates on peer to peer lending platforms, but now the rates are much more like traditional bank rates. Also once upon a time people with poor credit could score a loan through peer to peer lending, and while some still can, the majority of opportunities have been removed for those with poor credit due to the changes. The only positive move this has had for P2P lending is that it has increased the pool of money in which to borrow from on P2P lending sites.
It is true that some people have seen lower rates with the changes to peer to peer lending. Those prime borrowers who get a lot of banks competing for their loans receive rather attractive offers. As competition for loans increases, profit margins go down, resulting in affordable loans for those with an attractive credit score. Yet big banks and other financial institutions have already stated clearly that they are securitizing P2P loans. Another change is in the works where peer to peer loans will be traded and sold on secondary markets.
Those who had wished to do business with private investors should now be aware that most of the money going to borrowers is from big banking and big time wall street investors. You may as well go right to the bank if that was your sole motive to use peer to peer lending. Now with the state of peer to peer lending a big bank is likely to fund your loan but remain faceless, there to just collect their money and make a profit.
Now a days peer to peer lending only has about a 10% approval rate. This is a major change from the birth of peer to peer lending where upwards of 60% of borrowers were approved for a loan. If you still wish to use peer to peer lending my advice is to also rate shop with banks and other lenders to maximize your approval chances and to rate shop for the best rate possible. By applying to both personal loan companies and peer to peer you will have more offers to compare and have the best chance at finding the best possible rates.
Sadly the peer to peer nature of peer to peer lending is no more. Yes you can find some true small investors and peers on these sites but they are a dying breed and becoming harder to find every single day. Peer to peer lending is now just another way to reach big banking, but the experience is faceless. It remains to be seen if a new network will rise from the ashes that caters to small investors and true peer to peer lending again.