Are you stuck in the payday loan cycle? Have you taken out multiple loans, or used a new loan to pay off the old one? Payday loans are some of the least-favorable types of loans. You may see interest rates as high as 500% APR!
Solo is an iPhone and Android based peer to peer lending app. Peer to peer means that other people are funding loans, with no banks or payday lenders involved. There are a few big benefits to SoLo when compared to payday loans.
What makes SoLo different?
First, you don’t need a credit check! SoLo uses its own proprietary credit grading system. The biggest factor in this system is how many loans you’ve repaid. This feature lets people with less than perfect credit get a bit of a fresh start.
Secondly, you set the interest rate! SoLo uses a marketplace model for its loans. You can create a new loan listing based on your specific needs. Choose the dollar amount, then choose the length of time, and then set the interest rate. Lenders can browse the marketplace and choose which loans they would like to fund. Be sure to add a photo to your profile, and be specific about what exactly you need the money for. Every little bit of personal touch counts when hoping to have your loan funded.
If you want to ensure quick funding of your loan then offering a higher interest rate can help. If you have a little room to be patient, instead offer a lower interest rate to maximize your savings.
How much do SoLo loans cost?
While you get to choose the interest rate, SoLo does charge a small fee for each loan. Generally, this fee is 7% of the amount borrowed. When borrowing, you will pay the fee at the same time as you pay off the loan. This means you don’t have to pay anything upfront.
Looking at the current SoLo marketplace, you will see most borrowers offer an interest rate between 3% and 15%. Borrowers typically request payback periods of 12-16 days. Doing a quick bit of math: 3% interest over 12 days would equal an APR of 91.25%. 15% interest over 16 days would equal 342.19% APR.
You also have to add in the 7% fee that SoLo charges. Is that a good deal? Maybe. If you are patient, and structure your loan offer with 3% interest and a 16 day payback period, you will end up with an annualized APR of 228%. While the industry average for payday loans is 391% APR, you will see huge variations across options. Some lenders offer structured loans (weekly, bi-weekly, or monthly payments) with rates under 200%.
Are SoLo loans a good idea?
There are certainly some benefits to SoLo loans. You can get a loan for $100-500 deposited into your checking account in as quick as a few hours. You also have the power to set loan terms that work well for your situation.
My favorite part of SoLo is that the lenders are other people like you and me! While the platform does make its 7% fee, the interest on the loan is getting paid back to normal people instead of predatory companies. The social aspect of the SoLo marketplace will be attractive to a lot of borrowers.
On the other hand, if your credit is decent, there are other places online to get small personal loans funded. Lending Tree can help you find a loan if your credit score is 350 or higher. Upstart has a minimum credit score of 580, and Lending Club and Prosper offer loans to those with 640 scores or higher. This type of personal loan will usually have a longer payback period (often 12-72 months) and rates in the 3.99-35.99% APR territory.
Should I Lend on SoLo?
Lending on SoLo could be a great way to help people in difficult situations, and make some money at the same time. Beware though of the downsides to shelling out cash with little to no protections for lenders.
Check out the marketplace filters to help pick which loan(s) you would like to fund. You can sort the borrowers by their SoLo score. This number reflects the repayment history of each borrower, but only for their other SoLo loans. Make sure to check out the loan history as well, looking to see what amounts they’ve borrowed, and whether or not they made their repayment on time.
Loans for people with strong scores don’t hang around long. Act decisively when you see an attractive loan! I highly recommend setting up a Google Sheet or something similar to track the loans that you have funded. Some percentage of loans will not get paid back. If your borrower defaults, SoLo will send their loan to a collections agency to try and recoup as much of your money as possible. If this happens, SoLo will charge the lender a 30% fee for their collections services.
You also have the choice to add “Lender Protection” to your loan. This insurance costs 5% of the loan, and adds a level of protection to your investment. Lender protection reimburses 90% of the loan amount, plus 90.06% of the interest. For example on a $100 loan with 10% interest, you would receive $99 in the event of a default. That leaves you pretty close to breaking even, but combining that with the 5% fee on every loan you fund, and the chance of losing 30% to collections, I have a hard time recommending this as an investment to anyone.