Online lending sites offer an alternative to traditional loans

(A spokeswoman for Karrot said the process was being managed by Yodel, which provides “plumbing” for the online systems of many banks; Karrot does not have access to consumer credentials and does not store the information.)

The analysis also helps Karrot schedule automatic loan payments at optimal times, Frohwein said, such as the day after scheduling an automatic deposit. (Borrowers can pay by check, but they will pay an additional fee for it.)

The site received thousands of requests in its first week of operation, Frohwein said, with around 65% going to debt consolidation, 12% to financing new businesses or home improvements, and the rest. to a litany of other ends.

Brian Bauman, 50, an accountant near Chicago, said he had three personal loans with interest rates ranging from 21% to 25%, and combined monthly payments of over $ 800. He knew Kabbage from customers who had used the site to fund their businesses, so last week when he received an email from his new branch, Karrot, he decided to give it a try.

On Thursday, he applied online and, in about 30 minutes, was approved for a 36-month, $ 15,000 loan at 17.7%. His new lower payment is $ 541 per month. While he was hesitant to provide his bank account password, he said, he was impressed with how quickly he received his funds: the money arrived in his bank account on Saturday.

Here are some questions about alternative loan sites:

Do I have to have good credit to use the sites?

Both Prosper and Lending Club provide personal loans to borrowers with a considered best credit rating – at least 640 for Prosper and 660 for Lending Club. (FICO credit scores range from 300 to 850.) Karrot does not specify a minimum, but a spokeswoman said the scores tended to be “near higher and higher.”

Do sites charge fees?

Typically, sites charge borrowers a set-up fee of 1-5% of the loan amount, depending on the length of the loan and the creditworthiness of the borrower. Consumers should factor this into their calculations when deciding whether the loan makes sense.

Is my payment file reported to credit bureaus?

After you’ve accepted the loan offer and started paying off, the sites report your file to the credit bureaus. So late or missed payments can affect your credit score and you will be subject to the lender’s collection policies if you don’t pay. While the peer-to-peer label may suggest a more user-friendly approach, said Christine Pratt, senior analyst at Aite Group, the sites attract serious investors who expect a return on their money. “They are basically finance companies,” she said.

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