What Is Peer-to-Peer Lending?

And why a financial institution is probably a better idea

Peer-to-peer lending, P2PLend_Featuredalso known as social lending or crowd lending, is a type of debt financing that allows people to borrow and lend money without a financial institution getting involved. It began in the mid-2000s, and we’ve seen peer-to-peer lending platforms such as the Lending Club and Prosper, which pair up borrowers with investors, grow and become greatly successful over the years.

Some people lean toward peer-to-peer lending simply because it removes an intermediary from the process, but what these people might not know is this type of borrowing takes more time and involves more effort and risk than other lending options.

“It’s very risky. It’s like investing in the stock market. Everybody may have great intentions, but when you’re lending this money, you have to be prepared to lose it,” says Beverly Harzog, co-author of “The Complete Idiot’s Guide to Peer-to-Peer Lending.”

First, it’s important to note why people participate in peer-to-peer lending. Peer-to-peer lending can yield great benefits for lenders, as the loans generate income in the form of interest, which is typically much higher than traditional interest percentages from things like savings accounts or CDs. In addition, peer-to-peer lending allows people to take out a loan when they may not have otherwise been able to get approval from standard financial intermediaries.

However, peer-to-peer loans are not insured, so default can be especially painful for investors.

“You might get back a bit more than a bank, but it is more risky because people might default on loans,” says Christine Farnish, chairman of the Peer-to-Peer Finance Association. “Even with responsible credit ratings, you can still get things that go wrong. So you can’t assume you’ll get your capital back.”

In addition, the lender is not able to have full confidence in the borrower. Where a financial institution can reject lending due to a high likelihood of the borrower being unable to pay the money when due, peer-to-peer lending involves much more of a risk factor. This is typically why the interest rate for peer-to-peer loans may be higher than traditional prime loans.

Here are just some of the benefits of borrowing through a financial institution versus peer-to-peer lending:

Financial institutions go hand in hand with reliability. You know it’s a dependable and consistent place to get a loan simply because they’re regulated by state and federal agencies, and likely have ties to your community.

Loan limits
A financial institution is backed by the Small Business Administration, so it can provide larger amounts — a $5 million maximum on a 7(a) loan — than peer-to-peer lending allows for. Most peer-to-peer loans, depending on their venue and investors, usually have a maximum of around $35,000.

Interest rates
In 2012, small-business loan borrowers at the Lending Club paid an average rate of 13.4 percent, according to a research study by the Federal Reserve Board of Governors. However, according to the National Federation of Independent Businesses, borrowers who took out small-business loans from financial institutions paid an average of 6.3 percent. So an institution may save you money in the loan process.

Depending on your credit history and circumstances, you may benefit from using a financial institution for borrowing over peer-to-peer lending. To learn more, contact us today.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.


Health Benefits of Chocolate

A piece of chocolate a day keeping the doctor away? It may not be as absurd as it sounds

When one imaginesChoco_Featured the kind of indulgences that quickly derail diets, chocolate is certainly one of the first things to come to mind. It may come as something of a surprise, however, to learn that there are actually a number of health benefits to eating chocolate.

Before you go grab a whole handful of chocolate candies, it is important to understand the caveats. If you eat chocolate with reckless abandon, you will gain unwanted weight. Commercial chocolate products are high in added fat and refined sugar, which adds up to unnecessary calories. Eating chocolate to excess puts you at risk not only for weight gain, but also for high blood pressure, heart disease and diabetes. As such, you should always eat chocolate in moderation; using a calorie-counting app to monitor your intake will help prevent adding on extra pounds.

It is also important to note that not all chocolate is created equal. Of all varieties of chocolate, dark chocolate, cacao and cocoa are considered by several experts to have the most beneficial qualities. According to Scientific American, a 2012 review of 20 different studies found that daily, moderated consumption of dark chocolate or cocoa resulted in an average drop of two to three points in blood pressure readings over a period of time.

To be sure that you are getting the proper benefits, Mary Engler, Ph.D., a professor of physiological nursing at the University of California at San Francisco, recommends to Women’s Health that, in a day, you eat no more than seven ounces of chocolate that consists of no less than 70 percent cacao or cocoa.

Just what are those benefits, though?

According to WebMD, if a chocolate product contains a sizable amount of nonfat cocoa solids, then it tends to have a high level of antioxidants. Dark chocolate in particular contains a great deal of antioxidants, which help rid your body of cell-damaging free radicals. Steady consumption of antioxidant-rich foods is associated with a lowered risk of cancer and a slowing of the aging process.

Reduced heart attack risk
The presence of flavanols in cocoa not only introduces antioxidants into the body, but the flavanols are also the ingredient best associated with lowered blood pressure and a lower risk of cardiovascular disease. According to Diane Becker, M.P.H., Sc.D., a researcher at the John Hopkins University School of Medicine, daily consumption of flavanol-rich dark chocolate can reduce the risk of heart attack by up to 50 percent due to its connection with slowing clotting in blood vessels.

Weight loss
Overconsuming chocolate will lead to gaining unnecessary weight, but according to the University of Copenhagen, tempered chocolate intake can actually help you shed pounds. The research also showed that eating a small amount of dark chocolate on a daily basis helps curb your appetite for other sweets and fatty foods. By indulging your sweet tooth within reason, you will better overcome the mental hurdle that comes with cutting junk foods out of your diet.

Rich in essential vitamins and minerals
Another added benefit of dark chocolate in particular is its high potassium, copper, magnesium and iron content. These vitamins and minerals are key components to ensuring your health: copper and potassium are useful in lowering your risk of stroke and heart disease; iron helps prevent anemia; and magnesium fights high blood pressure and type 2 diabetes.

Again, it should be noted that chocolate will only prove beneficial for your health if you consume it in an appropriate fashion. If you are able to regulate your intake and limit it only to the purest chocolates possible, then you may find yourself benefitting in a number of surprising ways.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Should You Get an MBA?

Determining whether an MBA is worthwhile for your financial future

There is alwaysMBA_Featured plenty to consider when it comes to determining the value of any type of educational degree, both undergrad and graduate. Lists of the schools where you get the most bang for your buck are always headline-grabbing, and analysts even try to compare the future financial value of potential college majors to determine which lead to the most affluent careers.

One type of degree that people are particularly interested in, regardless of the field they work in, is the MBA. If you are wondering about the value of going back to school for your business degree, the following information can help you make that determination.

“An MBA is only worth the expense, time and effort when the graduate plans to work in a business-related field, in management, or as a company founder. For those working in other industries, unless they are in management or leadership roles, an MBA may not be useful,” says Adam Hayes, CFA for Investopedia.

It is important to have a specific career plan in mind in order to properly determine whether an MBA is right for you. If you want to start your own business or need to add some credentials to your resume, getting an MBA could be exactly what you need. Furthermore, if you work in a field where all advanced positions are held by people with MBAs, it could also be in your best interest.

If you are hoping to advance in your current field by getting your MBA, you should look to see whether the higher-ups at your company or in your field have MBAs. If most do not, then it is reasonable to think that you also may not need one to receive a similar promotion. If you have lots of experience in your field and have already achieved a leadership position, you may not need an MBA to prove your worth to a new company, even if many of the other employees have them.

If you have determined that an MBA is important for your desired career, it is important to note that not all MBAs are created equal. Schools with highly selective admissions carry an air of prestige that many people feel will help them get ahead. Not everyone can get into these schools, obviously, which is why they have earned their reputations. This leads potential students to wonder whether they should forgo getting an MBA if they can do so only at a second- or third-tier school.

“A new analysis done exclusively for Poets&Quants by PayScale, which collects salary data from individuals through online pay-comparison tools, shows that the MBA — even from schools that lack global or national cache — delivers hefty seven-figure income over a 20-year period,” says Fast Company and BusinessWeek former editor John A. Byrne in a contribution to LinkedIn.

This analysis used information from graduates of the top 50 U.S. schools to determine median pay and bonus pay over a 20-year career span. The estimates were conservative because they did not include compensation in the form of retirement benefits, health care or stock, which all add hugely to the overall value of a job.

“For the most part, the results are exactly what you would expect: The highly ranked, big-brand schools tend to deliver the highest earnings over a 20-year period,” according to Byrne. “Harvard Business School’s MBAs come out on top, with median income of $3,233,000.”

It’s no surprise that you will definitely get the most value if you can get into one of the top-tier schools. However, when you consider the fact that graduates from all top 50 schools analyzed earned a high income over the span of 20 years, it is clear that you shouldn’t rule that MBA out if you can’t get into a top-tier school.

If you think carefully about the career you hope to have in the future, you can make a good determination of whether an MBA is necessary for potential job candidates and whether that MBA can be earned at a school you can feasibly get into. Speak with us if you have any questions about financing your college dreams.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

The Economic and Social Cost of Student Loan Debt

The wide impact of student loan debt and how to help the situation

The cost of studentStLoans_Featured loan debt is clearly felt by those directly involved, whether they are students themselves or family members who have taken out loans on behalf of the students. Student loan debt has a wider effect, however, with a large economic and social impact that spreads throughout the country.

“In a widely discussed brief last year (as widely discussed as briefs can be), data from the New York Fed suggested a macroeconomic drag due to student loan debt in the wake of the Great Recession,” according to Forbes Contributor Josh Freedman.

The brief also suggests that people who had more student loan debt were not as likely to purchase cars or homes as people were without a debt burden. This has a direct impact on the car and housing markets and a wider impact on the economy as a whole.

“Rising student debt levels are changing how millions of people approach major milestones and core financial decisions, affecting long-standing social and economic patterns,” states Kelley Holland in a contribution to CNBC. “Owning a home used to be a key marker of adulthood and maturity. But home ownership has plummeted among Americans under age 35, from 43.3 percent in the first quarter of 2005 to 34.6 percent in the first quarter of 2015, according to the Census Bureau.”

Due to student debt, first-time home buyers can only afford homes in the lower price range, which is limiting the market value of other homes. Builders and realtors are also being impacted due to the lack of market for higher valued homes.

People in their 20s are also delaying starting a family, a trend that has been going on for years. In the summer of 2015, the birth rate for women 20-29 hit a record low according to Pew Research. It isn’t possible to predict exactly what the economic impact of this trend will be, but it is clear that the social impact is already being felt, as the landscape of young parenthood already has a dramatic new look.

“Research has also found that the burden of student debt hinders innovation and entrepreneurship, a core component of the economic prowess of the United States,” states Holland. “Researchers at the Federal Reserve Bank of Philadelphia and Penn State studied the relationship between student debt and small business formation and found ‘a significant and economically meaningful’ link: more student debt led to fewer small businesses being formed.”

Experts have many ideas regarding how to improve the student loan situation. Due to the fact that the majority of student loans are federal loans, some experts feel that there would be less student loan debt overall if the balance shifted more toward private loans from financial institutions.

“First, private student loans arguably have the strongest consumer protection: a robust underwriting process that includes an ability-to-repay test,” says Richard Hunt, president and CEO of the Consumer Bankers Association, in a commentary on CNBC.com. “Government loans are subject to the Department of Education lending rules, which don’t require such a test.”

Another reason is that private lenders must provide a full and comprehensive disclosure of conditions and terms, and a summary of the full price of the loan over its lifetime. This can help students and their parents accurately weigh the costs and the benefits.

Students can also help decrease the burden they feel, as well as the larger social and economic impact of their debt, by taking the right steps to make home ownership easier sooner. A good start is talking to their financial institution about the steps they can take to reach a level at which they can be approved for a loan. This could include forming goals like saving up to a specific down-payment target. Then they can make use of one of the many free budgeting tools available online to help get their spending in check and save more efficiently.

Higher education is still a very important part of building a successful future. You can be in a better position to enjoy the rewards if you make thoughtful decisions about what type of loan to choose and practice careful budgeting to ensure that you can still meet all your life goals, like buying a home and starting a family.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.