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Social Lending Service Asks Friends To ‘Vouch’

The social lending startup Vouch Financial, which helps consumers secure lower interest rates by tapping into a borrower’s social network, has secured $3 million in new funding, TechCrunch reported.

Vouch, which was founded by former PayPal and Prosper executives, said other investors that contributed to the seed money include Greylock Partners, First Round Capital, and a number of angel investors. The startup joined the growing alternative lending space in 2013 and was designed to loan money directly to consumers from Vouch. Currently, the company is in its beta stage, TechCrunch said, and the loans’ funding source could change in the future. By leveraging a consumer’s social network to “vouch” for them, the company has enabled them to typically achieve a loan for less.

"It’s kind of an old concept…to say that, if you’re the kind of person who’s being ignored by our current financial system, who do you turn to for help? Well, generally, your friends and family.” said CEO Yee Lee. “If we can help map out that trust network, then maybe those would be interesting relationships to draw on for access to financial services.”

To vouch for a person seeking a loan, the person vouching completes a short survey saying how they know the borrower and answer a series of questions about how financially responsible they are. Vouch also asks the contact if they would be able to pitch in if the person they vouch for is unable to make payments on the loan. The vouchers can also provide the borrower with some extra money to put toward the loan.

The startup uses a mobile application and website option, but 70 percent of the testers in the beta period are using the mobile option. The pilot period involves Vouch installment loans of between $500-$7,500 that is to be paid back over the course of one to three years with interest rates between 5-30 percent. Similar to traditional loads, it uses FICO scores and reviews the borrower’s other financial accounts. Vouch is also said to have fewer fees associated with the services as it doesn’t have an application fee, annual fee or prepayment fee. It does, however, have an origination fee of between 1-5 percent when the borrower is sent money and the late payment fees are 5 percent (minimum $15).

Vouch has not officially launched, though its websites and iOS app are alive. Lee told TechCrunch the company plans to finish its beta market in the coming weeks and is looking toward increasing its loan size from $7,500 to $15,000.

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