Hey all. A recent post about lending club and prosper made me think of something and I wanted to know if it is something already being done. With there being so many private lenders to use when buying real estate I wondered if any of those lenders ever lend money for another purpose. Lets say someone wanted to get started in real estate but first wanted to work on getting his debt to income ratio down a few points. Lets say this guy has a good credit score but has several credit cards, a small auto loan and another short term loan with a high rate. He could go to lending club and consolidate it but it likely will not lower his dti because lending club will not loan more than 60 months making his payment for the one loan as much or sometimes more than the debt he is consolidating. If a private lender would do a direct loan for say 10 years at a rate of 10-12% then the monthly payment would be much cheaper and increase the guys cash flow. Also it if were done outside of the credit system it would drastically increase his dti and possibly add to his already good credit score. This would allow the private lender to get a nice return over a longer period and may allow the borrower the ability to more quickly get into real estate investing. Of course there is a higher risk with lending to one person Vs being a lender within lending club where things are spread out among multiple loans but the upside is good for both sides if it worked out. I would like the opinions of those who are already somewhat in this space. Is this type of loan anything someone has done or considered?
The challenge with your plan is the lender doesn't have much for collateral. When we lend on Real Estate, not only is the loan safe but with every payment that is made the loan gets even safer because the equity increases. Your loan collateral decreases in value if you are pledging cars or other personal items.
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