You have a credit card, and you just charged $1000. This is very easy to do and yet extremely tough to pay off. While the news bulletin about credit cards doubling their minimum payment rate is old news, the fact remains the same. If you were to only pay the minimum payment, on time with no late fees or additional charges, it could take 22 years to pay off that $1000!
For the estimated 40% of cardholders who carry a balance from month to month, the low minimums free up cash. But paying off a big charge little by ever-so-little also means that a $1,000 debt can turn into a 22-year commitment -- and that you'll accumulate thousands more in interest in the meantime.
Information such as the one above makes us wonder if there is an improved way to pay off your credit card debt. For people with good credit, we have a great answer. The answer is a 3 year term loan with convenient electronic payments and a rate that doesn’t go up.
And…we’re back up; apologies everyone.
The https://secure.lendingclub.com web site is temporarily down; will be back up shortly. Thank you for your patience!
A few press articles such as this one have been published recently about practices that artificially increase the FICO score of certain borrowers. We have kept an eye on this issue and agree with this opinion:
Ginny Ferguson, a mortgage broker in Pleasanton, Calif., and a credit expert for the National Association of Mortgage Brokers, considers the practice mortgage fraud, and the trade organization is about to release a policy statement against it. "These companies are encouraging consumers to commit fraud," she said.
While the FICO score remains one of the best indicators of a borrower’s credit-worthiness, other factors are always used by banks and p2p lending companies to assess risk, including income, debt-to-income ratio, etc. At Lending Club, we are going one step further. We are creating a consumer’s “social credit score” that takes into account standard measures, like FICO score and other factors usually used by banks, as well as social measures, such as the connectedness of lenders and borrowers.
We believe a member is more likely to pay their debt on time when that member borrows from a community of people they know, or feel connected to. Lending communities typically experience fewer defaults than banks because they are founded on the premise that people are less likely to default to a community of people they feel close to versus a faceless bank. As always, we’d love to hear your feedback on this idea: is social credit scoring worth exploring? Are we going in the right direction? Let us know what you think.
In case you are thinking, “Where can I find some more information on this p2p lending thing?” – We have just the place you need to go. The site NetBanker has just published a great report on Social Personal Finance that compares Lending Club to “the MBNA of P2P Lending”. We are very fortunate to have made the cut off for this annual report, which came out on May 31 a few days only after we launched on Facebook.
The report itself goes over many aspects of social media. Sites like MySpace, Facebook, and LinkedIn are all discussed in the report. A question that many ask is “Why are social networks so popular?” We have that one asked to us all the time. NetBanker has an explanation:
Because they combine entertainment, communications, news, hobbies, and gossip. They are almost like a mashup of every major medium: television, radio, magazines, and newspapers combined with communications both private-one-to-one and public-broadcast modes
We think social networks and other online communities are so popular also because they provide a new, interactive way of connecting with one another. These connections are based on groups, networks, affinities, relationship. At Lending Club, we believe these connections create an ideal environment for person-to-person lending. As Jim Bruene noted in his report:
Lending Club is the first to leverage the Facebook interface to support actual financial transactions.
We look forward to reading more articles of NetBanker’s in the weeks to come as P2P lending continues to develop and establishes itself as a fair and efficient alternative to banks and credit card companies.
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