Online Loans Are Becoming More Popular
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(CBSMiami) – When you think of taking out a loan, do you automatically think of heading to the bank? Well, today, experts say more people are heading to the online marketplace.
The number of nontraditional lending platforms is growing and industry experts say more and more people are using the loans for nontraditional reasons.
When TJ Clayton and his wife were looking to adopt, they thought they'd have at least a year to save up. So when they got the good news their baby was coming in a matter of weeks they needed money fast.
"My first reaction was, 'Wow we don't have the time to save and to plan that I thought we were going to have'," Clayton said.
Clayton said because of the quick timeline, traditional adoption grants and loans weren't an option for him, so he went online for a marketplace loan.
"It was a pretty simple process," Clayton said.
Once known as peer-to-peer lending, now more institutional investors are putting money into these types of consumer loans, meaning there is more cash available for borrowers like Clayton, who apply online.
Experts say this alternative from of borrowing is becoming more mainstream.
"We're seeing that as far as the growth goes, as, as the number of loans that are out there, the number of people that are knowledgeable of it. The growth in the marketplace lending has been almost exponential," according to Bob Gerstemeier, Chair of the National Association of Personal Financial Advisors.
That exponential growth includes the launch of new lending platforms as well as dramatic increases in the number of loans originated. In 2014, Prosper Marketplace originated $1.6 billion in loans on the platform, up from $369 million in 2013.
Industry experts say some people are now coming to marketplace lending to fund big purchases you might not typically think of getting a loan for; home repair, elective medical procedures and even adoption.
The benefits of this type of loan, according to the companies, are lower interest rates and speed. Borrowers can log on from anywhere.
"From their home, from their desktop and from a mobile device, 24 hours a day," said Ron Suber, President of Prosper. "They can share information with us, we can make offers for credit and we can often fund their request for a loan in three or four days."
"Investors that are funding loans are directly connected to the borrowers in terms of the funds, so it's an incredibly efficient system and the net result of that is borrowers get far lower rates," said Dave Girouard, founder of Upstart Network, Inc.
As with any loan though, financial adviser, Bob Gerstemeier says it's important to read the fine print in the contract, and understand the risks of borrowing money and do your research.
"If a company hasn't been around and is just starting, look closely and make sure that that's the type of company you want to be working with," Gerstemeier said.
As for TJ, he says he did plenty of research before signing on the dotted line, and he's grateful he was able to get a marketplace loan.
"Knowing that that was behind us and we could now focus on all the other important things was, was really nice," Clayton said.
In terms of fees and interest rates, most of these marketplace lenders have a loan origination fee that can be about one to six percent and interest rates that range from about five to 30 percent, depending on the borrower.
