The Site Banks Don't Want You to Know About

Sounds foreboding, for sure. But it's true. What do banks have to worry about? Plenty. Even with the government's generous grant to keep our banking system afloat, banks are still in a precarious situation. Here's why:

Due to our credit crisis, they have significantly pulled the reins in on loaning to Joe Blow off the street. It used to be that, with a little magic made by the loan officer, you could get yourself a good loan, even it if meant adding an extra point to your rate if your credit was not perfect. Not anymore. Now, if you go to a bank for a loan, your entire credit history will be under scrutiny. They are just looking for a reason to say, "No."

Ok. Banks are not loaning as much. So? Well, that's a large income stream for them. You think they are there so you have a safe place to put your savings? Nope. They use YOUR money to loan to other people at a rate of interest. That's how banks make their money. With making loans. So if they stop making loans, they stop making money.

Furthermore, to compensate for this decrease in loans, they have increased their interest rates. Just try to get a car loan or student loan for under 9 or 10%. Try it. I dare you. I don't know about you, but I wouldn't want a loan at that rate or higher (12-13% Yikes!)

I'm not a fan of credit and debt to begin with. But sometimes, you need to secure a loan and there's no way around it. So this is the reason for this post. If you absolutely, positively need to get a loan, try not to go with a bank. Go with www.lendingclub.com.



Simply put, LendingClub.com is a site with a two-fold purpose: it provides an alternative loan option for loan seekers, i.e. car loans, student loans, etc. with rates banks can't touch (starting at 7.9%) and it is an opportunity for investors looking for a more secure place to invest which does not contain the words "Dow" or "Jones" (investing in the stock market is very risky right now).

So whether you are looking to get some money or looking to give some money, this is the place to go right now. And it's not a 1 on 1 relationship. Your loan might be secured by 5, 10 or 20 different investors.

Don't take my word for it. Take a look from this article from none other than Harvard Business Review:

Forget Citibank – Borrow from Bob

by John Sviokla

With consumer credit still tight, peer-to-peer lending is on the rise. Why? For one thing, human society naturally evolves to create pools of capital with which to fund ideas and absorb risk. Roman legionnaires insured one another by swearing to care for the families of comrades lost in battle. The creation of the shared stock corporation allowed for bigger and bigger risks to be taken. Whenever people come together to create a pool of capital, the potential for wealth creation blossoms.

For another, peer-to-peer lending is cheaper than consumer credit. Lending Club’s rate for the best credit risks is 7.88%, whereas the bank rate for personal loans, on average, is over 13%. A credit-worthy borrower gets the money faster and for 5% less.

Why now? First, the internet and social networks enable peer-to-peer interaction on an unprecedented scale. Second, electronic mechanisms for assessing potential customers are emerging. Lending Club starts with traditional credit scoring and adds a proprietary assessment of customers’ reputations within their social networks. You may think of Facebook as fun and games, but important underwriting information is hidden in there for those who know how to look.

So what? A profound secondary effect of the down market will be an increase in the availability of peer-to-peer finance and its convergence with traditional lending. My bet is that mainstream investors and banks will cherry-pick the best investors in Lending Club and other systems – reducing risk by tapping their superior credit-assessment capabilities – and fund them to grant more and bigger loans. Moreover, within five years every major bank will probably have its own peer-to-peer lending network.

If innovative legislation were drafted to allow peer-to-peer risk coverage, similar transactions might begin to flourish in the insurance market. Precise knowledge of local conditions would allow individuals to band together in order to underwrite the cost of insuring properties in safe neighborhoods or to make insurance more widely available in higher-risk neighborhoods.

The current economic constraints will only accelerate the growth of these new entities. I predict that they will be among the most important financial-services innovations in the coming decade.

John Sviokla is the vice chairman and director of innovation and research at Diamond Management and Technology Consultants in Chicago.

So there you have it. Good credit almost guarantees a loan. Apply today and get a loan today. Click here to get started.