How the 'sharing economy' helped me claw out of massive credit card debt
KEN SWEET, ASSOCIATED PRESS
MAY 16, 2015, 10:49 AM

NEW YORK (AP) — When I realized I was paying off six different credit cards and not getting anywhere, I decided to consolidate my debt, like millions of other Americans.

I visited my local bank, asked for a $15,000 loan but was offered an interest rate higher than my cards were charging.

So I looked into online lenders and discovered a growing part of the sharing economy known as peer-to-peer lending, a system in which a group of investors pool money to loan to people like me.
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Prosper found investors in my loan in two days and I had my money in five.

I never visited a branch or met a loan officer. And the interest rate of less than 9 percent beat the 13 percent offered by my brick-and-mortar bank.

After borrowing the money, I wanted to know more. Who were these "peers" and why did they think I was such a good credit risk?
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Peer-to-peers have been able to charge less than traditional banks largely because their costs are low. Prosper, Lending Club and others have no retail branches, and the risk is passed onto investors. As more investors put money into these loans, interest rates have fallen as well. Prosper loans in 2013 had an average rate of 16.8 percent. In 2015, the rate is 13.3 percent.

Even with this growth, peer-to-peer lending is tiny compared with big banks. JPMorgan, for example, has $187 billion in consumer loans on its balance sheet.

The lending peer I tracked down is Don Davis. I owe him $1,500. Davis' company, Prime Meridian Capital Management, owns 10 percent of my loan.


"I take you at your word you'll pay us back," Davis joked in an interview.


Davis got into peer-to-peer lending in 2012 and owns more than 14,000 loans, in whole or in pieces. His $60 million-plus Prime Meridian Income Fund had a return of 8.5 percent in 2014.

Like many investors, Davis was attracted to peer-to-peer lending because other types of debt, such as bonds, had become unattractive. With interest rates and yields stubbornly low, it's difficult to make much money in that market.

Prime Meridian Income Fund provides investors low cost access to short-duration high yield consumer loan portfolios from creditworthy borrowers that produce consistent returns. This fund lets investors participate in the enormous and profitable consumer credit market that has previously been the exclusive territory of a few big banks. The objective of the fund is to outperform peer-to-peer lending platforms and other fixed income portfolios by using a dedicated API with proprietary credit algorithms to overweight the best risk/reward loans in a broadly diversified portfolio.

The Prime Meridian Income Fund is available to Accredited Investors only.