With the amount of available credit in the United States shrinking dramatically over the last year, banks have become much more selective about what type of loans they are willing to provide. Private student loans were one of the first types of loans that banks stopped offering because of the risk associated with providing loans to individuals that don’t necessarily have an immediate means of repaying the loans.

As a result, the only student loans that many students have been able to take out are publicly-backed Stafford loans. These loans are rarely enough to cover the full cost of tuition, leaving many families without an immediate means to pay for college. If you are having trouble finding a private student loan online, there may be a few alternative sources where you could get private student loans that you haven’t considered.

There are now a number of companies, such as Prosper, Lending Club and Fynanz that provide students the opportunity to borrow money from individuals to pay for the college in the form of peer-to-peer student loans. With these services, students create a listing for a loan on a peer-to-peer loan website and then individual investors can opt to fund part of the peer-to-peer student loan that the student is hoping to take out.

With Prosper or Lending Club, the loan that the student will be taking out will start repayment immediately and amortize fully over a three year period. Some of the peer-to-peer lending firms that deal exclusively in peer-to-peer loans, such as Fynanz, may provide students some deferment options which will make it so that they don’t have to repay the loan immediately, and instead students can begin repaying the loan after college.

Typically the interest rates that students will repay on their loan are comparable to what student would pay if they were to take out a private student loan from a bank.

Publicly-backed loans from traditional lenders should be the first choice for students looking for financing options to pay for college, but peer-to-peer student loans can provide a great secondary financing option for students that need additional funding for college.

If you are looking to get any sort of personal loan through the internet, you will be inundated with offers from hundreds of different banks, credit unions and finance companies. Most of the offers you’ll find have terms that are worse than typical credit cards. If you’re looking to borrow money for a wedding, a car, a vacation or a major purchase, consider the option of peer-to-peer loans from a company like Prosper.com or Lending Club.

A loan that you receive from Prosper or Lending Club is just like any other personal loan, but instead a bank giving you money, the money that funds your loan comes from individuals. When getting a peer-to-peer personal loan from Prosper or Lending Club, you’re essentially cutting out the middle man (the bank), so that you can get a better interest rate and terms on a loan.

Peer-to-Peer personal loans from both companies amortize fully over 3 years. The interest rate that you pay will vary between 7% and 22% depending upon your credit score. The only fee that you’ll have to pay is a 1-3% origination fee on the loan. Every month your payment is deducted from your checking account and at the end of the three year term, your loan is paid in full.

The interest rates are much more competitive than what most credit card companies are offering. Citibank is now raising their credit card customer’s interest rates up to 29.99% for borrowers that have good credit and other banks are following suit. You’ll likely also get stuck paying in the 15-30% range if you try to take out an unsecured personal loan from a bank. Getting a loan with an interest rate of 10% to 15% doesn’t sound all that bad when comparing it to some of the other options available.

The process of getting a personal loan from Lending Club or Prosper is relatively easy. The first thing you need to do is visit Prosper’s Loan Application Page or Lending Club’s loan application page and begin the process. You’ll have to fill out a simple loan application form online (there’s no application fee), then your loan will go into a funding process. After two weeks, your loan should be fully funded and then the money will be transferred to your account.

You should never take borrowing money lightly. Keep in check the amount of total debt that you have and work to pay it off as quickly as possible. If you find yourself in the situation that you do need a loan, using peer-to-peer personal loans is an excellent alternative to going to the bank.

As of the end of 2009, Lending Club is now originating over $6 million in new loans per month, almost three times what its primary competitor, Prosper.com, is putting out. Although it’s currently getting a lot of attention while Prosper.com is languishing with low amounts of capital, there are still some things that Lending Club could do to provide a better experience to its investors.

We don’t have too many Lending Club complaints, but the company could do a better job of explaining the rates of return that its investors are receiving. Lending Club currently boasts that its investors are averaging a 9.67% rate of return, which is technically accurate, but that rate of return is only so high because the average age of loan is only 14 months.

Why does this matter? We know that about 9-10% of loans will be delinquent or go into default over the 3 years that loans on Lending Club amortize and when most of the loans are relatively few, most of them had not had the time to go delinquent yet. Perhaps a better way to gage performance would be to look at loans that are close to being fully paid off, such as loans that had originated in June and July of 2007 when the company was first founded. Looking at these loans alone will give investors a better idea of how Lending Club loans perform over the life of each loan.

The other Lending Club complaints that we have largely revolve the investing process itself. Quite often, you’ll find yourself with some money in your account that you’ve received from a payment and haven’t had a chance to re-invest it yet. In essence, there will always be some percentage of your money that’s sitting and doesn’t earn any rate of interest. When you bid on a loan, that money is also locked up for a week or two before the loans is technically originated.

With Lending Club, you’re going to lose out on the time value of money in the process. Lending Club could mitigate some of these problems by paying lenders a fixed interest rate as a money market fund for the funds they do not have invested like PayPal offers with its balances.

The other improvement we would like to see is to provide a way to invest a fixed amount of money and then automatically fund new loans as investors collect the $25.00 minimum to partially fund a loan. Lending Club does offer a “click free” investment option where they will invest your funds for you, but it’s currently only available to investors with $10,000 or more.