October 14th, 2008 — In the News, P2P Lending, Zopa
Zopa, the UK based peer to peer lending company, is shutting down their US branch due as a result of toughening conditions that are currently being experienced by the US economy. Zopa provides loan services in the UK, as well as in Italy and Japan through a pure P2P style marketplace. Borrowers would request loans, and then the individual lenders would contribute as much or as little as they wanted to, towards the request. Then when enough funding has been collected, the loan is finally put together and granted. As the borrower pays back the loan, interest earned goes back to the lenders. This micro lending model has made the system popular in the UK and the Italy, and Zopa is soon to open a branch in Japan following the same model.
With the opening of the United States branch, Zopa found that they could not launch the same kind of lending system due to regulatory issues. In order to provide their service, they have teamed up with credit unions in order to provide these lending services. Lenders would park money in CDs with the credit unions, and this would allow their money to sit before borrowers request the money. This would enable the borrowers and the lenders to enjoy the same sort of interest rate benefits as the European users. The regulatory restrictions that were placed upon Zopa would ironically cause the same conditions leading to the closing of Zopa’s United States branch, however.
The same regulations behind the restriction of Zopa’s services are a part of the US economic crisis that has cause interest rates to skyrocket and the economy to experience a great deal of turmoil in the process. With less and less benefit being offered to lenders and borrowers, Zopa was forced to close down the United States branch. US lenders and borrowers will not be completely put out, however. Zopa is directing its current and future US customers to deal directly with the credit unions that it had partnered with.
Despite rumors, the credit unions had not reduced the amount of loans created. Rather, the credit unions has increased the number of loans made as traditional US bank and lending institutes have reduced their volume. Credit unions are not susceptible to the financial woes of Wall Street, and as such are making as many loans as before, if not more for making up the reduction that is a result of the economic crisis. For this reason, Zopa is glad to be able to provide US customers with a viable option that can provide a great service.
Existing customers will be gradually migrated to the partnered credit unions. Individual borrowers and lenders will still enjoy the same interest rates, customer service and federal insurance for CDs made. Payment schedule will also be identical, only payments will transfer over to the credit unions. This transition is made easy since in the US, loans were setup already with the credit unions.
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September 10th, 2008 — Loanio
I have been having an ongoing email conversation with Michael Solomon the CEO of Loanio for quite some time… In fact, he originally bought advertising on this blog over a year ago. While still hesitant to give an exact date, he told me in no uncertain terms that Loanio is in the final stages of preparing for launch and that both “final security audit and legal compliance audit” are the final hurdles to launch and both are wrapping up.
You may recall I mentioned seeing Loanio at Finovate in SF. To me their most interesting feature is the possibility a co-borrower for bad credit borrowers. I am interested in seeing the impact of the co-borrower on the fundability of bad credit loans in the peer to peer marketplace.
Tom at Prosper Lending Review has some screen shots and a writeup about the inside access he was given.
I expect after many delays that this time is for real and I for one am interested to see if the entrance of a Prosper competitor can re-energize the p2p lending space the way Lending Club and Prosper did in early 2008. Competition breeds innovation and innovation is good for consumers. Welcome Loanio I hope your launch is highly successful.
August 19th, 2008 — Green Note, P2P Lending, Site Review
P2P student loans have exploded onto the scene this past year, due in a large part to a lack of availability of traditional loans. There has never been a better time for a p2p site to start offering student loan assistance, and Green Note is one of the newest entrants into the marketplace.
The concept here is pretty simple. A student signs up for the service and fills out a profile stating how much money they need for their education. They can either set up or join a community to try to get assistance. Emphasis is placed on inviting your own friends and family to your community, so it is not clear on whether or not you will be able to seek outside assistance for your loan as a borrower.
Once you have your network built up and you have people that are ready to fund your education, they go through the process at Green Note to fill out all of the paperwork. All loans carry a 6.8% fixed rate and will be due upon graduation. This could cause problems for those looking for an instant return on their investment, but the site is pretty clear about what lenders can expect.
We liked the fact that this site caters to students, regardless of their credit history. Basically, if your community feels you have merit, you’ll have a pretty good chance of getting funding for school. They also focus on having several people lend on one loan, which does spread the risk around quite a bit. It’s similar to going to a family reunion and hitting up all of your relatives for a few bucks, only a lot more organized.
There is a lot of protection here for lenders and we appreciated the fact that they are formalizing the P2P process to make it safer to lend. We would have liked to see a little more information on how collections are handled, but overall, it’s clear that Green Notes has everyone’s best interests at heart.
One very interesting point is that no co-signers are needed for a loan and that citizenship is not necessary. While this is terrific for foreign students that have decided to study in the US, it does raise some concern for lenders, especially if the student returns to their home country and it is impossible to reach them. There is a potential for abuse here, and this was probably our main concern. However, given that the site is still in formation, we’ll give them a chance to address this point.
Overall, Green Note is perfect for those that already have a good community of family and friends that are interested in lending towards their education. It’s not really meant to be a way to find new people to help with funding, but it does help bring these communities together and make the entire process of lending money a lot safer for everyone involved. It will be interesting to see how this site grows over the next few months and how well it is received.
July 28th, 2008 — Fynanz, P2P Lending, Site Review
This year, it has never been more difficult to get a student loan, thanks to new federal regulations. Hundreds of lenders announced that they would no longer be taking part in federal loan programs and schools are struggling to try to offer loans directly to students. This opened up a huge marketplace in the p2p sector for student loans, and business is definitely booming.
Fynanz.com is probably one of the best known p2p student lending marketplaces in the business and they have built up an impressive track record. The process is actually quite interesting and so far, they have been very successful with placing student loans with those that need the help. In brief, a student will need to join the Fynanz.com community, and then set up what amounts to an online auction.
This auction details the student’s loan request, and further information about why they need the money. Once the auction starts, lenders in the community bid on the loans. In order to place an auction, Fynanz.com first has to verify the identity of borrowers and lenders, and will underwrite the loan request. After the auction is complete, the lender supplies the money, which is then disbursed by Fynanz.com to the student and the school of their choice.
The process goes quite quickly and it’s very easy to get everything set up. Fynanz.com uses something called FACS to assist them in underwriting loans. What this means is that students are ranked according to risk, and assigned rates. Academic scores count heavily on this, as well as the student’s background. For those under the age of 21, a cosigner may be required to complete the loan.
We found it interesting that Fynanz.com decided to calculate risk on an academic model rather than the traditional credit scoring model. Rankings range from 500 to 820, much like FICO scores, and if a student’s FACS ranking is below 640 they will not be able to arrange for a loan through the service. Apparently, the company has found that grades are a very good indication on whether or not the loan will be paid, and they have had a lot of luck using this scoring method.
At the end of the day, this is a very fair way to determine whether or not a student should have a loan. This removes any economic barriers between students and focuses on their actual academic performance. It will be interesting to see if this model expands beyond p2p lending and into traditional banking.
The higher the FACS score, the lower the interest rate, which is also quite fair. For students that rank in the top tier, the margin range is 2.5% to 3.7%. This changes to 7.2% to 7.9% for scores that are in the 640 range. If there was ever a reason for students to focus on their grades, this is a pretty good one.
Fynanz also provides either partial or full guarantees on the original loan amount. The guarantee percentage is dependent on the FACS Grade of a loan listing.
While in enrolled in school at least half-time, a borrower may choose between different repayment options:
- Deferred Repayment Option or academic deferment – while in academic deferment the borrower is required to make monthly $25 Good Faith Payments. The Good Faith payments made while in academic deferment help the borrower establish a good relationship with lenders and demonstrate financial discipline. A six month grace period is given after separating from school.
- Interest Paid Option – full monthly interest payments are due on the loan while enrolled in school. Choosing the Interest Paid Repayment option can save thousands of dollars in interest expense over the life of the loan, because the $25 monthly Good Faith payments will likely not be enough to cover the interest accrued on the loan.
In either option mentioned above, monthly principal and interest payments will be due once loan repayment begins. We realize that some students may not yet have found employment even after six months; therefore, borrowers may request to pay just the interest expense on the loan for the first two years of repayment, “Initial Interest Only” option.
We liked Fynanz.com’s methods and have placed 2 bids on listings as of this morning… One is a platinum plus and the other a gold honors…
They also have a very attractive lending bonus as well. $25 bonus once you successfully lend to a borrower (you must sign up with a referral link to receive the bonus and in doing so the referrer would also receive $25). A 3% bonus when you lend $3,000 (that is a minimum bonus of $90 on $3000 lent.) If you lend $3K and refer 5 people the bonus is retroactively increased to 5% in addition to the $25 per referral. This is a very attractive bonus offer and one that I encourage all RateLadder readers to consider.