There are two major types of loans: secured and unsecured. Unsecured loans are usually popular because it is easy to obtain. They are not attached to any collateral, allowing borrowers to get money for almost any purpose. With unsecured loans, people are not worried that they lose everything if they are not able to pay on time or not at all. This type of loan is a little less risky for borrowers as the consequences are not as immediate if you fail to repay.
Below are some of the unsecured loans you can get:
A credit card is a form on unsecured loan because you are only borrowing money from the credit card company to buy something and paying back at a later date. Using a credit card means you have a pool of money available at your needs. Credit cards are popular due to the fact that borrowing money is easy; once application is approved, you can use the money with anything you want to purchase.
This popular loan type usually came from a non-financial business. The borrowers get enough money to cover their expenses and make a payment on their next paycheck. Payday loans are easy and convenient. However, they have a high transaction fee as well as huge interest rates.
This type of loan is designed for education funding. This is always a good fit for students because they can get unique features that cannot be found somewhere else. It has flexible repayment options, enough grace periods, and subsidized interest. There are no other requirements except the borrower should be a student.
Small business or Start-Up Loans
Usually, start-up businesses have few assets or no collateral at all to use when they apply for a loan. Most of the financial institutions will offer unsecured business loans for those who are starting to put a company. Depending on the loan company you borrow from, the repayment terms can be flexible. Keep in mind that the loans are being approved with the understanding that the business is responsible for paying back the loan.
Peer to Peer Loans
This loan is allowing you to borrow money from individuals instead of traditional lender such as a bank. There are many online loan companies allowing people to post a loan request and individuals may or may not accept the request. These peer to peer loans are on a fixed-rate instalment and features competitive interest rates. However, keep in mind that your credit score is important to get approved.
This type of loan is unique because it only needs your signature to secure a loan. The borrower only needs to promise that he or she will repay the person or business lending money. Signature loans are frequently available at banks and other credit unions; usually released in instalments. Generally, the borrower will pay back the loan with certain monthly amount until the total amount has been repaid fully. This loan has a lower interest rate, and so it is recommended for first-time borrowers.
This is offered by financial institutions with a specific amount that is agreed by both lender and borrower. The agreed amount has a fixed repayment schedule and to be paid on following options: monthly, bi-monthly, or bi-weekly instalments.
A Detailed Analysis Of Top 3 P2P Lending Platforms For Investors In 2018
Peer-to-peer or P2P lending platforms ease the process of debt financing by allowing people to borrow and lend money without a financial institution. It is way faster and cheaper than any bank.
Here is an in-depth, detailed analysis of the top three P2P Lending platforms to invest in this 2018.
1. Prosper Loan Marketplace, Inc.
Prosper was the very first P2P lending company in the US. Their investors have helped fund about $11,663,465,463 since 2006.
The platform has tremendously grown since its start. It now has over 250,000 members. They have reported that 83.5% of their active investors have received returns that even exceeded their expectations.
Prosper is available to investors in all states, including District of Columbia, except Alabama, Arizona, Arkansas, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, and Vermont.
Loan Interest And Return Rates
They have loan interest rates ranging from 5.99% up to 36%. Prosper has a slightly higher rate compared to other lenders, but they are one of the few who allows borrowers with low credit scores.
They base their interest rates on credit information such as available credit, number of inquiries, recent delinquencies and credit card usage.
Investment returns vary according to the Prosper loan rating ranging from AA or lower risk with the lower return of 4.07% and HR or higher risk with the highest return of 11.68%.
With the Automated Quick Invest, investors can put their money to work very quickly. It is a great feature which helps investors to keep their money fully invested.They would only have to choose criteria, such as loan grade and others.
Investors only need 100 notes or $2500 to be properly diversified. This amount is lower compared to other lending platforms. Each note requires a minimum of $25, but since Prosper doesn’t have fixed increments, it can be any amount past that.
For investors who don’t like to manage their investments, Prosper has a Concierge Service. This service allows investors to provide the amount on which interest rate they want to invest in; then Prosper will take care of the rest. It starts at $2500 with no other additional fees attached to it.
- Borrowers And Default Rates
Prosper’s borrowers have an average FICO score of 710, versus the usual 695 in the US. The average annual income of their borrowers is $93, 043, compared to a typical $72, 641.
With Prosper, you get access to an extensive and detailed, borrower profile compared to other lender platforms. Money lenders can get access to loan histories of borrowers who have previously used Prosper. This feature allows them to review if a borrower has a good standing loan history with Prosper.
Prosper had dropped its default rate since they had changed their risk model and underwriting in July 2009. Since then, their default rate had dropped to 3.6 in 2014.
2. LendingClub Corporation
Renaud Laplanche founded the LendingClub in 2007. He was a premier player in the P2P lending space. His company is a huge entity in the online lending marketplace, whose main goal is to connects lenders and borrowers.
LendingClub has over 150,00 investors, 2 million borrowers and $33 billion loan investments.
LendingClub is available to new investors in all states, including the District of Columbia. However, the states of Alaska, New Mexico, North Carolina, North Dakota and Pennsylvania are only available via FolioFN which is a trading platform used by LendingClub.
Loan Interest And Return Rates
Their interest rates range from 5.2% up to 28.99%. They take into account the borrower’s credit report information such as FICO score, number of recent credit inquiries, length of credit history, the total number of open credit accounts, revolving credit and others.
With this formula, most borrowers end up paying higher rates for the higher loan amount and longer term.
When you invest in the consumer credit asset class, LendingClub will provide 4% to 6% solid returns and monthly cash flow. 99% of investors with over 100 notes saw positive returns to their investments.
Investors receive the payments for the principal and interest, together with monthly cash flow which can amount from 2% up to 5%, as the borrowers repay their loans.
In LendingClub, they will provide you with three options when you want to invest in a semi-automated way. You can choose from High, Medium and Low-risk loans.
If you prefer LendingClub to automate your investment fully, you can get a PRIME account. You would only need to specify an interest rate, and then the system will take over from here. The LendingClub PRIME has a minimum investment of $5000 and a one time fee of 0.8%.
The minimum investment amount is $25 per note, and other amounts are only available in $25 increments. You need a minimum of $1000 to get an account and properly allocate your investment.
Borrowers And Default Rates
It is important for borrowers to have a decent credit before obtaining a loan from LendingClub. The company uses Transunion to pull credit data and allow borrowers with a minimum credit score of 660.
The LendingClub had a default rate of 3.2% way back in 2010, but it had since raised to 8.7% in 2014.
3. Upstart Network Inc.
Launched by ex-Googlers in 1024, Upstart has created more than $1.7 billion of loans. This lending platform has been very popular among younger generations of borrowers who don’t have a long credit history. It is mostly because Upstart’s underwriting model goes beyond FICO scores.
Their goal is unique in their own way as they seek to provide superior loan performance and improve their borrower’s access to credit.
Upstart is available to any accredited or licensed money lender in the US. The accredited investors are open to investing in all states as they only are subject to federal securities regulations.
Loan Interest And Return Rates
The average Upstart loan interest rate ranges from 11% to 15%. Loan amounts can range from $1000 to a maximum of $5000. Loan terms may last three to five years.
There is no minimum income, minimum credit history or maximum debt-to-income ratio. But, Upstart does not accept borrowers who have bankruptcies or public records on their report. Or those who have six or more credit inquiries on their credit report for the last six months. They also prefer borrowers who don’t have a debt ratio of 16%.
Upstart offers their lenders return rates around 7.4% across all grades with 97.6% of investors earning positive IRR. Investors earn on average as much as 5.6% to 9.2% across all loan grades.
To invest with Upstart, you need to be an accredited investor. It means you need a have a net worth or joint net worth exceeding $1 million, excluding the value of your primary residence. And, an annual income higher than $200,000 in the last two years.
One of the major difference of Upstart compared to other lending platforms is that they do not charge any investor fees. Also, if a borrower defaults, Upstart refunds investors with the origination fees in the loan.
However, in Upstart, a moneylender has the minimum capability to pick loans. You would be able to view several filter criteria, but after moving forward, there is a disclaimer warning you that they would no longer support additional filters anymore.
The only filter you can only adjust is the risk rate, from AAA to D. After that, your investment would be entirely automated.
Borrowers And Default Rates
Upstart borrowers’ FICO Score average is around 688 and weighted average income of $84,466. The 75.8% of which are college graduates. The most common reason, which makes up to 75% of the borrowers are looking to refinance their credit cards.
According to Upstart, about 91% of their loans are either current or paid in full. They allow borrowers not based on FICO scores alone but also consider their educational and employment qualification, such as degrees attained, school or university they attended, the area of study, occupation, and employer.
This lending model helps them to develop a statistical data of the applicant’s financial capacity and personal propensity to repay. However, this model also generates a rate of 5% default of principal.
P2P lenders platforms are a lot of help to borrowers and lenders. Investors generate revenue from a portion of the interest which borrowers pay on loans. On the other hand, borrowers benefit from easy access to funds.
It would pay to be diligent with your work in finding the best P2P lending platform and planning a strategy which can generate more revenue for your investment.
How To Opt For The Right Type Of Loan For Your Small Business
Business is not just a one-time thing that once you decide for it, that is it. This decision-making process will affect the company significantly, and it takes lots of thorough thinking in all situations. This also means that there are different factors to consider for careful planning. But more importantly, it goes for the organization’s finances. If your company is lacking money to operate or get by, what should you do?
What Do You Need the Money For?
Loans are part of the financial planning, and it helps businesses survive now and then. It is essential to look at the core of the problem to analyze and think of the solution. You must examine why you need the money and what you need it for. There could be a lot of reasons why you seek extra cash and money lenders. This decision should be established first before you make a loan.
There might be cases that you may avoid loan depending on your business needs. However, whether it is for short-term or long-term purposes, you may need a licensed money lender. You have to entrust your situation and money matters to someone who knows what he is doing. Your finances must be protected and done right in all angles. A money lender can help you with that.
How Much Cash You Require?
You need to be precise about the amount of money you need. Your lender can see through if you know your business potential and financial growth. Bigger loans mean bigger payments and smaller loans might not do enough unless it is just what you need. Whichever cash you require, make sure that you make the most of the offer. You are borrowing money because you need it not just because you want it.
You also need to look at the rate of the cash you wish to loan. You can’t accept the first offer you get just because it is laid on you. Keep in mind that this is still money we are talking about and there are things at stake. Your loans are supposed to help you and not bury you more in-depth. This cash you are aiming for may be the only resort you might get for your business lack of money.
When we talk about interest rates, also ask your lender about other fees that it may cost you. You need to objectively strategize how you are going to pay for the borrowed money. It is also essential to know what scheme of payment you can do with it. There is also an APR or annual percentage rate that comes with loan processing charges. Do not forget to ask about these additional fees and prepayment penalties as well.
When Do You Need It?
Sometimes, you need cash because you need it now or as soon as possible. Fast cash may be more expensive than when your loans undergo the standard application process. The application process undertakes underwriting so that it may take weeks or months. However, if you need that fast cash, lenders will secure their financing against potential losses. That is how the rate of fast cash increases than the regular loans.
What Kind of Loan Do You Need?
Small businesses loans are divided into short-term and long-term loans.
- Short-term loans can be processed faster than the long-term ones. This does not have the same restrictions as the long-term loans. For a small business, this is ideal and easier to secure. However, it has higher interest rates.
- Long-term loans can have schedule repayment for years. This may not be ideal for new business. However, it has lower interest rates, and it has the benefit of manageable payments.
Additionally, these loans are categorized based on its use.
- Business Line of Credit works like a credit card. It has its limit, and you only pay for the interest of the money you borrow without other charges. This is ideal for the owners who are not sure of the amount of money they need.
- Crowdfunding is only useful if you are collecting money for initial funding. However, this is not ideal if you need money for operating costs and additional capital.
- Invoice Factoring helps you get that money you are supposed to get from your unpaid invoices. This is another way to get fast and quick cash. The lender will pay you the invoices in advance. Once your client pays for it, the lender will deduct their charges and give you the remainder.
For whatever reason you need the money for, it is best to consult professionals who know more about lending and borrowing. You also need to know your business capabilities and full potential in paying before you make a loan. Use this to improve and develop your company and do not waste it. Money is vital in running firms, make each penny count.
Smart Ways to Use a Small Business Loan
According to World Bank’s Ease of Doing Business Index 2016, India is a country where credit is not available easily. This is especially in the case of small business owners. It hardly needs to be mentioned that most small business owners face bottlenecks in securing financing for their businesses. The prudent approach is to be smart and efficient in making use of the available funds through quick business loan Bajaj or other ways of financing. If you have managed to get a small business loan it is just half the battle won. The real challenge of running a small business is putting the funds to the best possible use so that it ensures healthy return on investment for your business. Two questions should be asked before you get the finance you want-
- How will I use the loan?
- How am I going to pay it back?
It should always be kept in mind that the latter is largely determined by the former. You should have a well thought-out plan on how you are going to use the small business loan. The following are some of the ways to make the most of the loan-
- Buying inventory- It goes without saying that one needs credit to purchase stock and product. This type of funding is great as it serves as its own source of collateral. If your business is undergoing seasonal fluctuations or if it needs to take advantage of short time periods to sell a higher amount of product to satisfy immediate supplier payment terms, this can be your feasible solution.
- Expanding the business- be it the development of new products, investment in new markets, or building or moving into new premises, expansion of a business can be of different forms. Raising our productivity can also mean expanding your workforce and investing into research and development. Likewise, building or moving into new premises is accompanied by relocation costs and purchasing new equipment.
- Capital and investment- often, acquiring additional funding to attain your business aspirations can get pretty difficult. It can either involve buying fixed assets such as machinery and plant or just aligning the business and acquiring the expertise it needs to further its own business objectives.
It can hardly be denied that capital investment is the bedrock of long-term finance. This finance is used to future-proof business operations and pave the way for expansion.
- Refinance and debt consolidation– After all, borrowing money from a wide range of different lenders is not usually as economical as having it in the form of a single loan, with a single repayment. Consolidating debt often includes reduction of repayment and reaping the benefits of lower rates.
- Soft costs- As opposed to “hard” physical assets or products, soft costs are the expenses that do not directly help create a product or provide a service. However, these are necessary to keep your business functioning in a smooth manner. These include, licenses, marketing campaigns, and professional fees. It also covers fees for advisors lie CPAs, attorneys, and bankers.
- Payroll and hiring- it goes without saying that a company is only as strong as the people behind it, and it is always a good idea to invest your new business loan in hiring. According to experts, the growth of a business is incomplete without employees who can take over some tasks such
as bookkeeping or ordering supplies, thus supporting the daily functions.
Small businesses can avail various types of loan for business, including invoice/bill discounting, working capital loans, secured term loans, loans against property, loans against property, machinery loans, medical equipment financing, and so on. However, small business owners should keep in mind that any NBFC, bank or financial institution is very cautious before granting approval to any loans. Bajaj Finserv is your go-to solution if you are on the lookout for financing with a low business loan interest rate, Flexi-Loan facility, hassle-free approval, and online account access. With Bajaj Finserv by your side, you need to fret about propelling your business to greater heights, with collateral-free unsecured loans of up to Rs. 30 lakh.
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