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Last Updated on January 9, 2019 by Work In My Pajamas
Chances are you’ve heard of peer-to-peer lending over the past few years. Online platforms in this industry can give you the opportunity to fund small parts of hundreds of different loans to borrowers all over the United States. One online lender, USA Express Loans, is changing the game. They’re currently developing a platform that will enable you to fund payday loans and cash advances through an online peer-to-peer lending marketplace. By working with other personal investors such as yourself, you’re able to offer borrowers a more competitive interest rate that can help them consolidate debt or cover expenses until their next payday. USA Express Loan’s goal is simple, to finally democratize the process of short-term lending and offer borrowers affordable solutions to cover their borrowing needs.
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Peer-to-Peer Payday Loans
Investors interested in peer-to-peer lending on their platform would need as little as $25 to get started. You can fund a small part of a loan or an entire loan; it’s your choice. Generally, an investor would fill out a quick application for security purposes and use a debit card or bank transfer to fund their online account. Through an online portal, you would be able to browse all loan requests from borrowers seeking a loan. USA Express Loans says they will complete an initial underwriting of all loan applications in this portal, to screen out fraudulent loan applications or borrowers with a very poor credit history. Using a huge database of credit information from the three major credit bureaus, and industry collected data from other online lenders, USA Express Loans will set a recommended interest rate. As the investor, you would have the ability to move this interest rate up or down depending on your own assessment of the borrower’s non-sensitive information, such as their employment, monthly income, borrower history, and other non-sensitive factors.
What Platforms Can I Get Started On?
Since the lending industry is highly regulated, this payday lending peer-to-peer platform from USA Express Loans is still under development while they seek regulatory approval from the California Department of Business Oversight, Securities Exchange Commission, and the Consumer Financial Protection Bureau. In the meantime, you can also invest your money in existing platforms that have obtained regulatory approval. This includes Lending Club and Prosper, who’ve been in the peer-to-peer lending business for over ten years. Unfortunately, they only handle loans with terms of three or five years, so the time commitment for your invested money is rather long. That said, investors on these platforms see between 5 to 15% return on investment (ROI).
The Borrower Experience
The borrower experience is practically seamless compared to taking out a loan anywhere else online. The borrower simply accesses a loan application on the website and fills out three or four pages of information that is used to evaluate their creditworthiness and the reasons why they are seeking credit. All of this information is compared to a database of past performance for that specific borrower or borrowers with similar information, in order to make an underwriting decision. The process is heavily data-driven and ultimately can deliver the absolute best interest rates and payment terms for a borrower with the least overall risk for the investors.
What if I Want Out?
One of the first questions people ask is how you can liquidate your investments in peer-to-peer lending. Fortunately, both major platforms offer a trading portal in which you can sell an existing loan (or part of a loan) which you’ve funded. There are many reasons an investor might want to liquidate their investment; for example the borrower has started to fall behind on payments, or they have completely defaulted on the loan and they no longer wish to include it in their portfolio. Oftentimes, an investor will offer one of these risky loans for sale at a highly discounted price to an investor that is betting the borrower will get back on track with payments or that the collections agency will be able to collect more on the loan than they purchased it for. Other reasons might be driven by the investor, such as a desire to cash out before the loan is fully paid off. In the end, these trading platforms provide the much-needed liquidity to get in and out of your investment without too much of a hassle.
The Future
The peer-to-peer lending space is rapidly growing, and this might be a good year to consider investing some of your money in the space. Once a loan is funded, the entire process is almost completely passive. All you have to do is sit back, relax, and watch the payments roll in month-by-month as you accrue interest!
