We’re not trying to start a war on social lending, or to say that it’s the only option. We think that social lending is clearly a good thing, but there are still big differences between this world and the traditional world of finance that need to be addressed.
If you’re just used to sticking to the facts in the world of traditional lending, it’s going to be a shock to have to open up. In order to get money from a social lending site, you’re going to have to write a proposal.
A proposal just talks about what you’re going to use the money for, and what type of expenses that you have. Breaking down how much money is coming in and out of your budget every month is very important. Your social lenders want to make sure that you are going to be able to comfortably pay for the expenses as well as the new loan payments.
The interest rate is something that’s bid up or down depending on your credit history. You may be able to get a better interest rate with social lending, but that’s not really the point of the exercise here.
Social lending is made up of people investing in other people. That’s powerful — what better way to say that you truly care about a person’s well being than to actually invest in them?
You will need to make sure that you are truly being as honest as possible. It’s tempting to try to make your story sound better than what it is, but social lenders tend to be research fans. The truth will eventually come out, and you don’t want to ruin your reputation. Once you take care of the first loan, you will have feedback. Paying it off on time means that you qualify stronger for the next loan, and the next loan, and the next loan.
This is another thing that sets traditional lending apart from social lending. In the world of traditional lending, you don’t really get too much credit for making the right choices from the start. On the other hand with social lending, once you pay off the first loan, you’re going to be seen in a much different light than the newbies that join. You will have proven that you are a financially sound person to invest in. Lenders tend to also do social lending for the investment — there is interest paid out on the money. So if you prove to be a sound financial bet, people are going to invest in you over and over again — even when they might not be fully committed into what you’re doing.
Don’t be afraid to look into social lending. It might be a newer type of funding, but it’s one that’s definitely here to stay!