What is Marketplace lending? Pros and Cons

Penny Crossman knows one or two things about marketplace lending. For 10 years she has covered technology in the financial services industry as an executive editor for American Banker and has written several articles on the lending landscape of the rapidly growing markets of the banking industry. She could say she is watching the market lending industry “growth.”

The original intention of market lending was to give individual consumers a way to lend each other. “A divorced mom in Ohio was able to explain why she needed $6,000 to pay off her credit card debt, and someone from all over the country could read her story and lend her money,” explains Crossman.

But finding enough consumers to fund these loans was a challenge. To address that challenge, marketplace lenders began seeking funds elsewhere. “LendingClub, Prosper and others have turned their eyes to banks and other institutional investors to fund and/or buy these loans,” Crossman said.

Over time, different variations of market lending began to evolve as fintech companies created platforms for linking borrowers with lenders. “The site allows consumers to see which loans are available from various lenders. They fill out a form to share some of the information, and these matchmakers route the application to the borrower and the bank where the loan is likely to be appropriate.”

What is Marketplace lending?

Traditional market lending, or peer-to-peer lending, are online companies that typically partner with banks, credit unions, non-traditional financial institutions, and even individual investors to provide access to a wide range of loan options. The company manages the complete loan process, including loan application, approval and repayment. Popular marketplace lenders include companies such as Upstart, Avant and LendingClub.

Marketplace lending can also refer to market matchmakers who present lenders’ options to consumers, allowing borrowers to prequalify for loans with their lending partners through online applications. Unlike traditional market lending, matchmakers do not control the complete loan process. Once you have prequalified, the borrower will work directly with the lender who ultimately decides to borrow.

How do I get a loan through Marketplace Matchmaking?

If you’re there Loan shopping Recently, you may have used market lenders without knowing it. Whether you’re looking for the best mortgage or the best personal loan, Google search may take you to sites like Nerdwallet, Lending Tree, Bankrate, etc., which provide a wealth of information about the different lenders on the same page based on a query.

The “golden rules” of loan shopping states that you need to check at least three different lenders and compare fees, fees and perks before deciding on one. You can do that manually. This means squinting your eyes by scrolling through small prints on each lender’s website. Alternatively, you can access a market where details of each lender have already been investigated and laid out for review.

Although there are variations in how each marketplace works, potential borrowers will follow these steps to match the bank rate lender:

1. Find the market. Consumers searching online for things like “best personal loans” may find bank rates for the best personal loan lenders. This page provides important details of Bankrate’s attention or partner lenders, including minimum APR, minimum credit score, maximum loan amount, and more, allowing consumers to compare multiple lenders in one place. The lenders recommended by Bankrate rate tables include lenders and editorial recommendations for the partners receiving compensation. Read our methodology to learn more about how we make money.
2. Read expert information about each lender. This is where marketplace matchmakers shine. A wealth of information compiles our expert fees, terms, fees, qualifying requirements, and even lender perks, organizing easy scan rate lists. You can even check reviews, check which lenders have won awards, and find out what other customers are saying about their experience with lending.
3. Fill in the application to get multiple offers. When a consumer clicks to “View Offer,” they are asked to fill out a form that allows you to pre-qualify for the loan using one of the lenders listed on the page. This prequalification process does not affect your credit score and is particularly beneficial for borrowers with fair or bad credit that they don’t know they are eligible.
4. Reviews will be provided and funding will be applied. When the consumer matches the lender, the loan application is completed through the lender and the market is out of the equation. The borrower completes the loan with the lender of their choice, and documents and further communication will be made directly with the lender.

Marketplace Matchmaking Pros and Cons

“Consumers with a high credit score (with market lending) can get quick loans at a lower price,” says Crosman. Borrowers with low credit scores can get loans through markets that are not available from traditional banks. ”

“On the other hand, consumers with inadequate credits will end up paying higher fees, and it can also be argued that these sites make it easier for people to get loans they can’t afford.

Pros and cons to consider when using the market:

Even if the convenience of viewing multiple lenders in one place is that it is important for borrowers to use the market to understand how it works.

“I haven’t seen any research on this, but my guess is no (consumers don’t really understand how market lending works),” says Crosman. “From what I see, marketplace lending is not a typical household topic. Few consumers read all the fine prints, and if someone needs to get a loan quickly, they focus on getting a loan more on loan qualifying and getting a loan than the nuances of how they fund the loan.”

The future of market lending

According to Crossman, the future of market financing could continue to evolve based on factors such as regulations and AI.

“I think volatility and uncertainty (financial markets) have cooled the interest of banks in purchasing loan packages from market lenders, while I think the current deregulation environment will be useful for banks who want to work with market lenders.

“In these markets, banks can broaden their scope and purchase or invest in loans for people who have never heard of them. Banks can choose the loans they purchase based on the FICO score tranche, which will help them manage their risk.

“I think AI is already helping to grow in this area. Many people, including startups and Avant, use AI in underwriting and fraud detection. AI models can process much more data. They can make more subtle lending decisions and detect patterns of fraud that humans or rules-based models cannot see.

Conclusion

With so many online lenders, banks and credit unions to choose from, following loan shopping advice can be very tackled. Even lender websites can take time to spend with the vet. Marketplace lenders and matchmakers are time and money savings, allowing you to access loan offers and detailed lender information in one place much faster than going alone. Regardless of how you shop for a loan, understand the fees, fees and terms before signing on the dotted line. And you never pay any kind of lender a prepaid fee to get a fee estimate.