NDSU Extension Service - Ramsey County

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Online Lending

Online Lending

 

                Most Americans have shopped online, made new friends and found old ones online through social media sites such as Facebook and searched for a recipe for dinner via an online cooking site. Now you can borrow money online.  Marketplace lending (sometimes referred to as “peer-to-peer” or “platform” lending) is a relatively new kind of online lending.

                Marketplace lending uses online “platforms” to connect consumers or businesses who seek to borrow money with investors willing to buy or invest in the loan. In most cases, once a loan is made, the platform collects principal and interest payments from borrowers and sends the payments, less certain fees that the platform keeps, to investors. Marketplace lending platforms generally market both new loans and loans that can be used to refinance existing debt.

                If you are considering applying for a new loan from any kind of lender, including a marketplace lender, you should take the following steps first:

                        Look at your income and spending. Create a budget to see exactly how much money you have coming in and what other payments you have to make each month.

                        Decide how much you can afford and really need to borrow. With a clear picture of your monthly budget, decide how much you can afford to pay on a new loan. Look beyond the monthly payment to the total cost of the loan, including interest and fees. Only borrow the amount you need and can afford, even if a lender allows you to borrow more.

                Be careful about refinancing certain types of debt.  While a lower interest rate can seem tempting, in some cases, you could lose important protections.

                        Federal student loans: if you’re considering paying off your federal student loan with a private loan, look closely if you’re switching from a fixed to a variable rate loan, and know that you’ll probably sign away certain benefits like loan forgiveness and income-driven repayment programs.

                        Pre-service debt: Active duty service members have important protections that apply to debt incurred prior to entering active duty. You could lose those benefits if you refinance.

                If you consider a marketplace lender as one of your options when shopping for a loan, keep in mind that marketplace lending is a young industry and does not have the same history of government supervision and oversight as banks or credit unions. However, marketplace lenders are required to follow the same state and federal laws as other lenders.

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