Is a P2P student loan or loan consolidation for you?

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The recent years have seen a significant increase in peer-to-peer lending for all sorts of loans, whether personal or business loans. Also known as P2P, crowdlending or person-to-person lending, it puts the investor and the borrower in direct contact, making it an attractive option for both parties in the field of education financing, whether to obtain a student loan or to later consolidate or refinance existing student loans.

Congratulations! That eagerly awaited college acceptance letter is in your mailbox. Or your hard-earned diploma is in your hand. But if you’re reading this now, you’re either part of the more than 60% of college students who will be taking out a student loan to finance their education or one of the 70% of bachelor students that has graduated in debt. P2P lending may be a way for you to avoid a lot of stress and increasing costs

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Why P2P for a student loan?

There are several reasons to consider P2P lending. First of all, it could save a lot of money in the long run. P2P loans offer much lower interest rates than banks and credit companies because the interest rates are set by lenders who compete for the lowest rate or are fixed by the intermediary company on the basis of an analysis of the borrower’s credit. The other advantages for the borrowing student include no need for a co-signer, low minimum credit criteria and fixed rates. In some cases, borrowers can provide additional information such as the name of the college and degree program, the year in school and GPA. They may even be able to include recommendations from friends and/or a personal message explaining how they will use the money. One of the advantages of P2P is that the money goes directly to the student, not the school.

personal loansFor those who have earned their degree and are now facing years of student loan payments, postponing the purchase of a house or starting a family, P2P lending is an attractive option for student loan debt consolidation. Basically you take out a brand new loan to pay off your old loan. But the new loan will likely have better interest rates, payments or time duration.

The options when looking for a student loan

However, whether you’re looking for a variable or fixed rate loan, it’s best to shop around because lenders’ interest rates vary greatly. Sites such as www.comparelend.com let you study the different options proposed by lenders and run a loan simulation on-line. Options may include auto pay, which leads to lower rates, and the on-line calculator takes into consideration the APR annual or annualized percentage rate. Comparelend.com works with trusted lending companies such as the well-known Lending Club and also Upstart, geared to student and personal loans.

Most of the above is looking at P2P as opposed to private banks. Often, students entering college are encouraged to apply first for federal education loans, which are cheaper, more available and have better repayment terms than the more expensive private banks and other forms of credit. But with the recent allegations of misleading and overcharging borrowers made against government contractors, they may want to consider crowdlending.

Student loans from the investor’s point of view

Some lending sites offer an unemployment protection. This, of course, is an advantage for the borrower considering that Congress made student loans, both federal and private, exempt from discharge in the event of personal bankruptcy. For the lenders, they have the guarantee that payments will continue. Indeed, investors might want to consider student loans as a viable short-term investment. As with any investment, there are incertitudes, most notably the possibility of default but most P2P sites pool the loan funds to mitigate risk. The loans are short-term and because the borrower feels “connected” to the lender, he or she may be less likely to default. Finally there is the social aspect: investing in a student means investing in the future.

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Sandra Bieniek is a professional journalist and translator working for international and on-line publications as well as for businesses and cultural institutions. With Master's degrees in both Journalism and International Affairs from Columbia University, she covers topics ranging from the environment to the economy, societal issues to human interest stories. She has also compiled reports submitted to the United States Congress on behalf of the International League for Human Rights and contributed to the annual publication “Issues Before the United Nations”.

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