Four years after the 2008 financial meltdown, peer-to-peer lending continues to gain traction and expects future growth in the years to come, according to an article from CNN Money.
Catering mainly to borrowers with high credit scores, companies like Prosper and Lending Club have steadily established themselves as credible lending sources with the help of technology and a few big names.
This week, President Emeritus of Harvard University Lawrence Summers joined the board at San Francisco-based Lending Club. He joins Keliner Perkins’ Mary Meeker and former Morgan Stanley CEO John Mack, but the company is well off despite the big names, writes CNN’s Jessi Hempel.
Lending Club currently issues an average of $82 million in loans per month, writes Hempel, and as of right now the company has issued more than $1 billion in total loans.
The company’s competition comes another San Fran-based lender, Prosper. Operating on a similar platform, Prosper issues an average $14.5 million monthly in loans and has issued $435 million total thus far, notes CNN.
Majority of both companies’ borrowers have high credit scores, the average ranging from 710-715. Most of these people plan to consolidate debt from a variety of assets such as credit cards and car loans.
Lenders from both platforms comprise of retail and institutional investors who can choose which loans to invest among the accepted loan requests. Around 5% of borrowers default, according to CNN.
Prosper claims investors have seen an average 10% return over the past three years, while CNN mentions Lending Club sees an average 9% return.
Perhaps the biggest selling point in catering to retail investors, the article notes, is the required minimum investment of just $25.
The drawback, however, is peer-to-peer lending is only available in 28 states as each has its own regulations about investments and securities.
Despite this setback, Lending Club—whose half of investments comprise of pension funds, money managers and other institutional investors—estimates these investments will increase to 70% as the company grows, reports CNN.
Written by Jason Oliva