Michigan Internet Marketing Club: Cheaper refinancing

Cheaper refinancing — for those with great credit

If you have excellent credit, there has probably never been a better time to owe money. One reason is that investment bank Goldman Sachs recently announced its intention to enter the online consumer lending market, a field dominated by online peer-to-peer lending platforms such as Prosper and Lending Club. These peer-to-peer platforms pair borrowers (often consumers who are consolidating credit card debt) with investors (who want better returns than those currently offered by banks and government bonds). Goldman’s move into this business will likely drive down the already low interest rates online lenders charge on loans.

In recent years, Goldman and other financial institutions have been taking larger bites out of the peer-to-peer marketplace, elbowing individual investors out of the way of personal loans. Their computing power gives them an edge over individuals, allowing them to identify which loans provide the best returns for the risks they assume. Currently, the safest loans are paying investors about 5 percent annually, and all but less than 1 percent of those loans are fully repaid by the borrower.

Goldman, by setting up an online lending platform, is now taking the next logical step—cutting out the Lending Club and Prosper ‘middlemen" and using its own computing power to determine the best risks, so that it can make loans to consumers directly.

For more information, read “Can peer-to-peer lending be a good investment?”

A similar phenomenon is taking place in that other large swath of consumer debt—student loans. Private lenders like Sofi.com are offering certain graduates with student loan debt significantly better terms than those they’re receiving on their Federal student loans. Typically, these loans are made to graduates with the least amount of credit risk, and can result in interest rates lower than 3 percent annually, compared to the Federal student loan rates of more than 6 percent for some graduate student borrowers.

—Chris Horymski

Additionally, institutional money, largely in the form of private equity, are offering terms to certain student loan borrowers that would be difficult to turn down.

—Chris Horymski

Additionally, institutional money, largely in the form of private equity, are offering terms to certain student loan borrowers that would be difficult to turn down.

—Chris Horymski

Additionally, institutional money, largely in the form of private equity, are offering terms to certain student loan borrowers that would be difficult to turn down.

—Chris Horymski