Social Lending (also known as Peer-to-Peer Lending) are online communities connecting people so they can loan and borrow money from each other thus eliminating the middle man, the bank.  Because the bank is eliminated, lenders and borrowers can lend and borrow money at better interest rates for both parties with extremely low fees.  The current major players are Lending Club and Prosper.

Both Lending Club and Prosper are very similar except that Prosper uses an eBay auction style where the interest rates are set by lenders via a bidding process.  Lending Club sets the interest rate based on a formula and lenders and borrowers have to accept the rate.  There is no bidding.  

A borrower at Prosper offers a maximum interest rate; however, the interest rate can be reduced if enough lenders bid on the same loan.  Lenders who bid on a loan must offer the lowest interest rate they are willing to accept.  The offered interest rate is not disclosed to the borrower or other lenders.  As more lenders bid on the loan, the interest rate will be reduced.

Lending Club sets interest rates for the borrower and lender based on the borrower’s credit score and other financial parameters. A loan grade is then established which takes into consideration Assumed Default Rate, Lending Club Base Rate, and Adjustment for Risk and Volatility.

Unlike a bank, when you invest in loans, your money is not FDIC insured.  Only when your money is in cash in your account is it FDIC insured by both Lending Club and Prosper.  Keep in mind this is investing and not a savings account.  There are risks involved.  The main risk is for lenders having borrowers who default on their loan.

For more information visit Lending Club (Lenders / Borrowers) and Prosper (Lenders / Borrowers).  You can discuss social lending at Social Lending Forums.

Lending Club is offering very low interest rate for car loans.  Rates are starting as low as 7.89%.

Lending Club allows you to borrow from $1,000 to $25,000 as an unsecured loan that can be used for any purpose such as debt consolidation loans, housing and home improvement loans, auto loans, home and small business loans, student loans, etc.

Lending Club is only available to United States residents.  To qualify borrowers need a FICO score of at least 660 with a debt-to-income ratio (excluding mortgage) below 25%.  Additionally, credit history must prove that you are a responsible borrower:

At least 1 year of credit history, showing no current delinquencies, recent bankruptcies (7 years), open tax liens, charge-offs or non-medical collections account in the past 12 months,
No more than 10 inquiries on your credit report in the last 6 months,
A revolving credit utilization of less than 100%, and
More than 3 accounts in your credit report, of which more than 2 are currently open.

To see if you qualify for a loan visit LendingClub.com.

Back in the days of no-money-down lending most people bypassed using a government-insured Federal Housing Authority (FHA) loan, which allows borrowers to purchase a home for as little as 3.5% down payment.  

With today’s real estate market, FHAs are the only alternative for buyers who cannot afford the minimum down payment of 10% that many banks now require for a conventional loan.

According to a Zillow.com survey, about one-third of buyers have 10% or less saved for a down payment.  As a result, FHA loans have increased dramically from 3% to 25% of the loan market.

Below are some facts about FHA loans:

• FHA loans are not only for low-income borrowers.  There is no cap on what a borrower earns.
• The max loan is $271,050 in areas where real estate is cheap, $729,750 in expensive markets such as California and New York.
• Thorough appraisals are required for FHA loans by the government.  Sellers must fix all issues before a buyer can close on a FHA loan.
• Nominal interest rates for FHA mortgages are comparable to conventional loans; however, there is a 1.75% upfront charge and a 0.5% annual insurance premium for 5 years and until the principal balance hits 78% of the sales price or the home’s appraised value.
• FHA mortgages now only takes a few days longer that conventional loans to close.
• FHA loans require written documentation of income which includes pay stubs and tax returns.

In today’s tough financial world lenders are way more cautious in lending money.  To get the best rate when applying for a loan you must show that you are a low risk.

The best proof is your FICO score.  The higher your FICO score the lower your interest rate.  Your FICO score is the number used by most lenders to determine your creditworthiness.  

If your score is at least 760 out of 850, you will more than likely get the lowest rates.  A person with a 760 FICO score may pay 5.05% APR on a 30 year mortgage.  However, a person with a 670 FICO score may pay 5.67% APR on the same loan.  The difference in interest will be thousands of dollars over the life of loan.

To improve your FICO score consider:

• Correcting errors on your credit report
• Paying your bills on time
• Reducing credit card balances to less than 20% of your limits

Additionally, to get the best rates consider paying a bigger down payment; 10% for a car, 20% for a house.

Related Article: How is Your Credit Score Determined?

If you are a former student with federal student loans (Stafford and PLUS loans originating before July 1, 2006), now is the perfect time to consolidate your loans.

Consolidating your loans will enable you to lock in the current low rates potentially saving your thousands of dollars in interest payments.  This may be your last opportunity to get these historically low rates.

Student loan consolidation combines federal education loans into a single fixed rate loan.  Rates have dropped last July 1st so now borrowers with Stafford loans who consolidate can lock in a rate of only 2%.  Plus loan borrowers can lock in at 3.38%.

Borrowers wanting to consolidate need to contact the Federal Direct Consolidation Loans program at the U.S. Department of Education by visiting LoanConsolidation.ed.gov.

Related Article:  Lower Your Student Loan with the Income Based Repayment Plan