Money Rehab with Nicole Lapin - Peer-to-Peer Lending: How You Can Become the Bank

Episode Date: June 25, 2024

Have you ever wanted to be the bank? With peer to peer lending, you can. Nicole explains how this works— and why this make be a good fit for you if you're looking for a loan at competitive rates....

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Starting point is 00:00:00 I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.
Starting point is 00:00:38 I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no
Starting point is 00:01:18 maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits
Starting point is 00:02:05 apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Have you always wanted to be the bank? Did you know you actually could be? There's a system offered by some financial platforms called peer-to-peer lending, where people like you and me could lend and borrow money from other people. And if you not only want to be the bank, but you don't want to use a bank to borrow money, this could be a fit for your lending needs as well. Today, I'm going to break down what peer-to-peer lending is, how it works,
Starting point is 00:02:53 and the pros and cons for both the lenders and the borrowers. Peer-to-peer lending is a way of financing that allows people to borrow and lend money without using an official financial institution as an intermediary. So think of it as the Uber for your finances. There's a platform that connects people with money to lend directly to those looking to borrow money. These transactions are facilitated through peer-to-peer lending platforms, which handle the nitty-gritty details of matching lenders and borrowers, assessing risk, and processing the payments. For people looking to make money on peer-to-peer lending, this money move offers potentially higher returns compared to traditional savings accounts or bonds. For borrowers, it provides access to
Starting point is 00:03:35 money that might be unavailable through traditional bank loans, often at more favorable interest rates. Getting started with peer-to-peer lending is straightforward. As a potential lender, you would have to sign up on the platform, deposit money, and then browse available loan listings. Each listing provides details about the borrower, including their credit rating, the purpose of the loan, and the interest rate offered. You can choose to fund the entire loan or just a fraction. Funding a few different loans fractionally is a common move because it allows lenders to diversify investments across multiple borrowers to spread out that risk.
Starting point is 00:04:10 If you're thinking about investing in peer-to-peer lending, here are four things you should think about. Number one, fees. Most platforms charge service fees, which can range from one to five percent of the loan repayment. So that's not the interest rate that you'll be making as a lender that's the fee you'll be charged by the platform it's really important to understand these fees as they can impact your overall returns number two risk the biggest risk in peer-to-peer lending is borrower default if a borrower fails to repay the loan you could lose your investment platforms mitigate this risk by providing detailed credit information and sometimes offering collections services, but there is always some level of uncertainty.
Starting point is 00:04:50 Number three, benefits. Potential for high returns is a big perk here. Interest rates on peer to peer loans can range from five to 36% depending on the borrower's creditworthiness. Also, peer to peer lending allows for portfolio diversification beyond traditional stocks and bonds. And we love diversification. Number four, the platform. Before signing up, shop around at different peer-to-peer lending platforms and evaluate the platform's reputation, fee structure, borrower screening process, and historical performance data. Look for platforms that offer robust risk assessment tools and have a solid track record. Now let's talk about the borrowers. If you're interested in borrowing from a peer,
Starting point is 00:05:30 the process involves creating a profile, submitting a loan application, and waiting for approval. Once you're approved, your loan is listed on the platform for potential investors to review. If your loan gets fully funded, you receive the money and start making payments according to the agreed terms. As a borrower, you can look to peer-to-peer lending for anything you want a personal loan for, like debt consolidation, which is where you basically consolidate high interest rate debt into one single loan with a lower interest rate, or home renovation projects so you can get more money to play with without tapping into your home equity. You can also get a peer-to-pe peer loan for personal expenses like covering medical
Starting point is 00:06:07 bills, wedding expenses, or major purchases, or even startup costs for your side hustle. If you need a loan and are considering peer to peer borrowing, here are four things you need to think about. Number one, fees. Borrowers typically pay an origination fee, which is a percentage of the loan amount, usually one to 8%. This fee is deducted from the loan before you get the money, meaning if you took out a $1,000 loan with a 1% origination fee, you would only receive $990. Also, late fees or repayment penalties might apply, so please read the fine print.
Starting point is 00:06:42 Number two, risks. While peer-to-peer loans can offer lower interest rates, they can also come with strict repayment terms. Failing to make timely payments can negatively impact your credit score and result in higher overall costs due to late fees. So just because you're borrowing from a peer doesn't mean you're borrowing from a friend that's going to let it slide if you start falling behind on payments. Peer-to-peer lenders have pretty much all the same roles as banks, so don't go in thinking that this is NBD. It can be a very BD if you don't have a foolproof repayment plan.
Starting point is 00:07:15 Number three, benefits. Peer-to-peer loans have lower interest rates compared to credit cards or other high interest rate loans. They can also be a lifeline for individuals with moderate credit scores who might not qualify for traditional bank loans. And number four, the fine print. Evaluate the total cost of the loan, including interest rates and fees. Understand the repayment schedule and any potential penalties for late payments or early repayment. Choose a platform with a transparent application process and good customer service is a must. NetNet peer-to-peer lending is transforming the financial landscape by connecting borrowers directly with investors, offering a win-win
Starting point is 00:07:56 solution in so many cases that traditional banks can't always provide. For investors, it's an opportunity to earn attractive returns and diversify their portfolios. For borrowers, it offers accessible financing options, often at lower rates than those of conventional loans. For today's tip, you can take straight to the bank. If you're looking for a loan, it probably feels like you're the one being evaluated. But don't forget that you have just as much power to evaluate your potential lender, too. Don't be afraid to ask for what you want. And don't be afraid to try to negotiate rates. There are a lot of lenders out there, and the worst thing they can say is no. And if they do, well, thank you next.
Starting point is 00:08:37 I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high-quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing
Starting point is 00:09:10 your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all to a point where I just knew that I had to get it under control for my financial future
Starting point is 00:09:45 and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com
Starting point is 00:10:30 slash MNN. Chime feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in Spot Me and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do.
Starting point is 00:11:08 So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important
Starting point is 00:11:30 investment you can make.

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