Pertuity Direct Offers New Twist on P2P Lending

In 2006 and 2007, a company called Prosper pioneered the business of peer to peer lending. The idea is that consumers lend money to one another and bypass the entire banking system. Unfortunately, Prosper found that their borrowers had a much higher default rate than originally expected and many investors ended up losing money. Other companies, such as Lending Club, reviewed what Prosper.com’s business model and improved upon it. There’s now another company that’s taking the lending aspect of the peer-to-peer loan business to the next level.

The company’s name is Pertuity Direct. They are taking a more traditional take on lending but are still using other consumer’s funds to make the loans. Essentially, investors that want to make loans and earn a rate of return on their money from borrowers will buy into a mutual fund which holds the all of the loans made by the company as assets. As the loans are paid to the mutual fund, the owners of that fund will receive the money back in the form of dividends.

If you want to borrow money from Pertuity Direct, you will find that the borrowing process is much more like applying for a loan at a bank than at a site like Lending Club or Prosper.com. Pertuity Direct itself is the arbiters of who will get a loan and who won’t. They review each application for a loan and decide whether or not to fund it and what interest rate to fund it at based on the applicant’s credit score. The process of trying to convince lenders to loan you money is all but gone. When Pertuity Direct approves a loan, the money will be taken out of the mutual fund that investors buy into to fund the loan.

If you’re looking for a personal loan, you’ll probably be able to get a better deal than you would by borrowing on a credit card or at a local bank. Their interest rates are currently sitting from 8.9% to 17.9% depending on what your credit score is. There’s also a 1-2% origination fee (they call it a closing fee). There’s also a $15.00 fee if you’re late on your payment. They also charge what’s called an “electronic funds transfer discount” but they don’t make it clear whether it’s the consumer or the company that will receive the discount when the consumer opts for electronic funds transfer to receive their money.

The company has really only been in operation for a few months. The 13.4% return rate is very tempting, but the track record just isn’t there yet to consider putting any serious amount of money in it yet. Chances are there will be some level of default, but they do a reasonably good job at prequalifying their borrowers, so it’s likely that the loans they make will perform much better than the ones that Prosper.com made. Whether or not it’ll perform better than mutual funds have over a long period of time remains to be seen.