3 On Your Side: New Ways To Borrow Money
By Jim Donovan
PHILADELPHIA (CBS) -- When you think of taking out a loan, do you automatically think of heading to the bank? Well as 3 On Your Side Consumer Reporter Jim Donovan finds, these days more and more people are heading to the online marketplace, especially if the loan is for non-traditional reasons.
When TJ Clayton and his wife were looking to adopt, they thought they'd have at least a year to save up. But when they got the good news their baby was coming in a matter of weeks they needed funds fast. Clayton says, "My first reaction was, 'wow we don't have the time to save and to plan that I thought we were going to have.'"
Because of the quick timeline, traditional adoption grants and loans weren't an option for him. So he went online for a marketplace loan. Clayton says, "It was a pretty simple process."
Once known as peer-to-peer lending, now more institutional investors are putting money into these types of consumer loans, meaning there's more cash available for borrowers like Clayton who apply online. Marketplace loans are often used to fund big purchases that you might not typically think of getting a loan for including: home repair, elective medical procedures, or as in Clayton's case, adoption.
The benefits of this type of loan, according to the companies? Lower interest rates and speed. Borrowers can log on from anywhere. Ron Suber, President of Prosper says, "From their home, from their desktop, and from a mobile device, 24 hours a day. 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." While Dave Girouard, Founder and CEO of Upstart says, "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."
Interest rates can vary widely, ranging from about 5 percent to 30 percent depending on the borrower, with loan origination fees usually between 1 percent and 6 percent.
Bob Gerstemeier is the Chairman of the National Association of Personal Financial Advisors. As with any loan, he says it's important to read the fine print in the contract, understand the risks of borrowing money and do your research. According to Gerstemeier, "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."
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