Peer-to-peer lending companies, such as Prosper and Lending Club, show how alternative lending structures can be effective and sustainable. A recent article in the American Banking News summarized BankRate findings on unsecured loans and found lower rates through peer-to-peer lending than banks and credit cards:
If you are looking at getting an unsecured loan, the rates that Lending Club and Prosper Marketplace offer are far better than what you’ll be able to get for an unsecured loan at just about any bank or credit union. According to BankRate’s most recent data, the average interest rate that balance-transfer credit cards are offering is 14.83%. Compare this to Lending Club’s average of about 9.5%.
Lending Club and Prosper Marketplace’s average also beat what you’ll be able to find on an unsecured personal loan from just about any bank. Wells Fargo is currently advertising personal loans with interest rate ranging between 15% and 29% on BankRate and Bank of the West is currently advertising their personal loans with a minimum rate of 15.25%. BBVA Compass is offering personal loans at 17.9%.
The success of Lending Club and Prosper highlights their alternative structure and lower fees when compared to banks and other lending institutions. Peer-to-peer lending popularity will no doubt catch the eye of banks and has already caught the attention of numerous state regulators. In fact, California has organized a hearing to learn about the history and process of alternative lending. Their success may likely lead to further political attention and regulation. Yet, these companies should be treated as the alternative lending institutions that they are and not molded to fit with current banking and lending regulation.
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