Marketplace lending

The Rise of Marketplace Lenders

Just as Amazon makes it convenient to shop online and deliver the products you need, marketplace lenders are trying to do the same for loans. Their goal is to offer consumers better credit options and to do so in a more efficient way. Through prioritizing the borrower and by using technology to simplify the application process, marketplace lenders are creating a strong case for why their businesses may be here to stay.

According to a recent PWC report focused on marketplace lending, the firm sees them as viable businesses with enough promise that many traditional financial institutions big and small have taken notice and are beginning to actively respond. Furthermore, they note how marketplace lenders are evolving from consumer and small business loans into other consumer lending needs while exploring new forms of innovation beyond the traditional lending market.

What exactly is marketplace lending?

Perhaps you have heard of the terms Peer to Peer lending or P2P lending? These have now grown to be synonymous with marketplace lending. The basics of how such businesses function is through matching borrowers with lenders online. In this manner, marketplace lenders can provide services at much lower costs than the more traditional providers of loans such as banks, private companies, or even the government.

Advantages of Marketplace Lending

Lower Rates

The business model creates a win-win situation for both borrowers and lenders. Marketplace lenders can pass on the savings to their users. Borrowers can secure lower interest rates and lenders can achieve higher returns relative to other investment products.

Simpler Process

There is a shortened timeline in which a borrower could take out a loan. An approval that may typically take weeks and of course plenty of paperwork is now done in a matter of a few minutes. Consumers can actually receive their needed funding in days. This is much quicker than what has been possible through more traditional providers of loans.

Transparency

Customers have the ability to know exactly how the products work and discloses in full the borrower’s costs. Furthermore, consumers are able to reach support staff through email and live chat. Many of the lenders make available loan books that provide further information about the operation and history.

Examples of Marketplace Lenders

Two commonly discussed groups that marketplace lenders are focused on are students and small businesses.

Education Financing

SoFi, Earnest, LendKey, CommonBond, and Credible are all marketplace lenders that have services focused on student loans and have already helped many individuals save thousands on their loan payments.

Small Businesses

Funding Circle, OnDeck, LendingClub, Kabbage are all marketplace lenders that are focused on small businesses. According to the US Small Business Administration, 99% of US companies, 54% of total sales, and 55% of all jobs are held by such enterprises. By providing them with an additional source of capital, small businesses are in a better position to meet their funding needs.

Regulatory Changes

One thing to note are the differences in regulation that are applied to marketplace lenders versus banks. While the former is much less regulated today, there are signs that the landscape is changing. As recent as last week, the United States Treasury Department filed a policy report calling for marketplace lenders to provide increased transparency and customer protections while also citing the potential for increasing access to credit for consumers.

For many, loans may help them step closer to their dreams. And, while it would be nice to obtain an education or start a business without having to worry about financing their cost, today it is an inevitable reality of our society. As a current or future borrower, the best thing you can do is explore all the options available to you and select the one that best suits your needs. Ultimately, whether you use a traditional bank, a private company, or a marketplace lender, the fundamental concepts associated with loans remain unchanged. 

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