Pertuity Direct is the newest company to make a serious entry into the peer to peer lending market place. However, the Pertuity Direct business model is very different from Lending Club or Prosper, two of the current leaders in P2P lending.
The business model used by Lending Club and Prosper starts when borrowers post their loan request, profile, and relevant financial information. Then lenders scour through the listings and decide who they want to lend money to. Pertuity Direct makes social lending more efficient and easier on everyone involved.
Pertuity Direct – Redefining the Peer to Peer lending market
Pertuity Direct handles the lending process differently than Prosper and Lending Club. With Prosper and Lending Club, borrowers enter their personal information and loan request, and lenders bid for portions of the loan until enough lenders agree to lend the amount of money the borrower requested. Pertuity Direct is a direct lender and handles the loan underwriting and pricing, then fills the loan from their available funds.
If Pertuity Direct funds the loans, where do the lenders come in? Lenders are actually a vital part of the lending process. They provide the money that Pertuity Direct uses to make loans. Lenders pool all their money into an SEC-registered mutual fund, called National Retail Fund (prospectus). All lender money goes into the fund, which buys the Pertuity Direct loans.
More information about the National Retail Fund. Like many other investments, peer to peer loans are not guaranteed, and there is associated risk. The risks are mitigated by requiring all borrowers to have a minimum FICO credit score of 660, and by diversifying the loans among all investors in the National Retail Fund. The National Retail Fund is registered with the SEC, but the Funds’ shares are not listed on a securities exchange and are not publicly traded. The National Retail Fund is independent of Pertuity Direct and because of the structure is considered bankruptcy remote from Pertuity Direct.
Lending Money with Pertuity Direct
As mentioned above, all lender money money is pooled into a “social lending mutual fund” where it is used to fund new loans. This creates an automatic diversification because you own a small percentage of every loan that is originated from that fund. Unlike lending with Prosper or Lending Club, lenders do not need to search through profiles and make independent assessments of who they want to lend to. This removes a much of the “social” aspect of peer to peer lending, and lenders take on more of a banker-like role.
Payment options. Lenders have the option of having their returns automatically paid out to their bank account, or they can have them automatically reinvested in the fund.
No subprime loans. Borrowers must have a minimum FICO Credit score of 660 to borrow money through Pertuity Direct.
Other important notes about lending with Pertuity Direct:
- Minimum investment: $250.
- Liquidity: You can withdraw your loans on a quarterly basis, however, there is a 2% penalty if you withdraw your funds within the first year.
- US residents only: Must be a US resident to lend or borrow money from Pertuity Direct.
Borrowing money with Pertuity Direct
Borrowing money from Pertuity Direct is a straightforward process. Borrowers simply need to fill out an online application and will receive a approval decision within minutes. Borrowers do not have to wait for loans to be filled from lenders who bid on loans. Once the borrower has received the loan approval and verified their bank information, their loan is immediately funded from Pertuity Direct’s available funds.
Privacy and convenience. The entire loan process is handled online, and Pertuity Direct maintains the privacy of their borrowers. Borrowers create a profile when they sign up for a loan, but their credit score, income, debt and payment history, and other personal financial information is never made public like it is on some other lending platforms. Each customer must complete a thorough identity verification process.
Additional information borrowing money from Pertuity Direct:
- FICO Credit score of 660+ required.
- Fixed rate loans from 8.9-17.9% (based on credit risk).
- Must be a US resident to lend or borrow money from Pertuity Direct.
The social aspects of Pertuity Direct
Pertuity Direct is a social lending platform, but the social aspect is much different than Lending Club and Prosper where lenders select who they want to lend to. With Pertuity Direct, lenders can view the borrower community and read their stories, but they don’t have to go through a lengthy selection process or need to fund multiple loans to get a true diversification on their loans.
Pertuity Bucks reward good borrowers. Lenders can send borrowers Pertuity Bucks, which will lower the borrower’s outstanding balance. Lenders receive Pertuity Bucks for free when they open a Pertuity Direct account, and they can award their Pertuity Bucks to any borrower. These Pertuity Bucks are applied toward the borrower’s loan. It’s a unique way to keep the social aspect of peer to peer lending going strong within the Pertuity Direct community.
Benefits and disadvantages of lending or borrowing Pertuity Direct compared with other P2P lending
Benefits and disadvantages of lending. Investors who lend with Pertuity Direct have greater access to their funds as they can withdraw their money at any time. Prosper and Lending Club both originate loans for 3 years. Lenders with Pertuity Direct automatically receive greater diversification of their funds; other P2P lending platforms require funding multiple loans to get diversification. The social aspects of lending through Pertuity Direct are much different and involve less “interaction” between the lender and the borrower. The minimum investment for lenders is $250 through Pertuity Direct, and it is $25 at Lending Club.
Benefits and disadvantages of borrowing. Borrowers can receive their money more quickly through Pertuity Direct because they do not have to wait for a loan to be filled before it is completed. Some borrowers may also receive Pertuity Bucks, which will help them repay their loans more quickly. I don’t see any major disadvantages to borrowing from Pertuity Direct as opposed to another social lending company.
Final thoughts on Pertuity Direct
I like the business model and I think it offers something good for borrowers and lenders alike. I am intrigued by the National Retail Fund and think it is a great way for lenders to automatically diversify their investments. If you want to borrow or lend through Pertuity Direct, you can sign up for an account at the Pertuity Direct website.