Make borrowing from family and friends official on terms you choose.
So you’re wary of private student loans — maybe you just can’t qualify for a good rate or the amount you need. But getting a loan from a parent or relatives to pay for your degree can get awkward if you don’t have a timeline for paying it back. And there’s not much incentive for your social network to crowd fund your education.
That’s where LoanWell comes in. This platform helps students draw up legal contracts to make borrowing from people you know and trust official — and profitable for the borrowers.
First, what is LoanWell?
LoanWell is an online platform that draws up legal paperwork for loans between family members and friends. It combines peer-to-peer lending — which connects borrowers with investors — and crowdfunding — which allows people to raise donations through their social network.
Founders Bernard Worthy and Justin Straight created it in 2017 to help cover educational expenses that students have trouble getting a competitive rate for — like coding bootcamps — but friends and family don’t have a real reason to invest in. Making it official allows you to customize and negotiate your rates and comes with terms and conditions that can save your personal relationships if things go sour.
Don’t have family and friends to borrow from? You also have the option of borrowing from one of LoanWell’s bank partners. However, you likely won’t be able to have as much of a say in your loan’s interest and terms, and you’ll need good credit to qualify for the lowest rates.
LoanWell vs. private student loans
Let’s take a look at how LoanWell and private student loans compare.
| LoanWell | Traditional private student loan | |
|---|---|---|
| How much can I borrow? | You set the amount | Set by your lender or school, usually up to around $60,000 per year for undergraduates |
| What can I use it for? | Any legitimate personal expense — doesn’t have to be education-related | Education-related expenses and traditional post-graduate costs like bar exam courses or medical residency relocation expenses |
| Credit score required? | No | Yes, or a cosigner with a strong credit score |
| Income required? | No | Yes, or a cosigner with a high income |
| What are rates and terms based on? | Your negotiating skills and personal relationships | You or a cosigner’s credit score, credit history, income, debt-to-income ratio (DTI) and other factors like your loan amount and term |
| How much does it cost to apply? | $29.99–$149.99 per year | Typically no application or origination fees |
How does LoanWell work?
LoanWell works by formalizing the family and friend borrowing application process. You’ll create a network of lenders and then come up with your loan rates and terms before signing the contract.
Before you apply, figure out how much you need to borrow based on your school expenses. Most private lenders recommend you fill out the FAFSA before looking at alternatives, since it can include federal grants and work-study programs, which you don’t have to repay. Federal loans might also be less expensive than what your relatives are willing to let you borrow and even come with forgiveness programs.
Once you know how much you need to cover after getting a federal financial aid offer, talk to your friends and family to find out how much they’re willing to lend. You’ll have the option to spread out your loan between multiple people or just have one person fund it.
Then, follow these steps to set up your contract.
Step 1: Choose a plan
Go to LoanWell’s website, select the type of loan you’d like and click Start. You’ll have the option to choose between three plans: One person, multiple people or a bank partner.
- One person. Have one friend or family member finance your loan. You’ll choose the rates and terms, they’ll earn all of the interest you pay. This option might work best for borrowers with one wealthy relative or friend they aren’t comfortable asking for money directly.
- Multiple people. Split your loan between as many as 25 friends and family members. You’ll choose the rate and each family member or friend earns a portion of the interest you pay on your loan. LoanWell recommends this option as your least expensive choice.
Click Start underneath the plan that works best for you.
Step 2: Set the terms
In this step you’ll either set your loan terms or choose a partner lender to apply through if you went for the bank partner option.
First, enter your name, address and email. Then enter the contact information of each person you’d like to ask to finance your loan. Take advantage of LoanWell’s repayment calculator to come up with rates and terms that work best for you (and that your friends and family are likely to accept).
You’ll need to enter the following information for each person you want to finance your loan.
- Their name
- Their address
- Their email
- How much you want to borrow
- The interest rate
- The loan term in months
- A late fee
- A start date
After you’re done, click Create.
Step 3: Sign up
Once you’ve saved your potential agreement, you’ll get a popup asking you to log in to complete your application. Click Login/Signup.
Enter your name, create a password and check the box verifying that you’re over 18 before hitting Sign Up. Click the verification link in your email and sign in to your account. Then click Save Previous to continue with your application.
Step 4: Review your repayment schedule
LoanWell breaks down each loan payment you’ll make by month, including the principle balance and the amount of interest you’ll pay. If this looks like something that works for you, click Save & Sign.
Step 5: Choose a payment plan
After you sign and save your repayment schedule, you’ll get a popup asking you to select a billing plan. Click through and select either the single loan agreement, starter plan, fundraiser plan or pro.
- Single loan. This plan only lets you take out one loan — for now. It costs a one-time payment of $14.99.
- Starter. This plan is a good deal for someone who thinks they’ll need more than three loans this year. You can get up to 20 loans and pay $49.99 a year.
- Fundraiser. For borrowers who want more than 20 loans a year but less than 50, this plan is the best deal for you. It costs $74.99 a year and covers up to 50 loans.
- Pro. Not sure how many loans you’ll need, but know it’ll be more than 50? You might want to go with this unlimited plan, which costs $149.99 a year.
Once you select a plan, pay with a credit card or through your PayPal account.
Step 6: Set up repayment, message your funders and sign documents
Once you’ve paid for your plan, you’re nearly there. The next few steps involve setting up your repayment plan, verifying your identity and sending out a message to the people you want to fund your loan. Generally, its a good idea to ask beforehand so they aren’t surprised with the email.
Once they get the email, they’ll receive instructions on how to fill out their part of the loan. Once you’re both satisfied, sign the loan documents and start making repayments through LoanWell’s servicer, Dwolla.
How much does a LoanWell loan cost?
It depends on several factors: Your plan, how many loans you think you’ll take out in a year and, of course, interest.
Use LoanWell’s calculator when coming up with your interest rate to find one that you can comfortably afford while also letting your friends and family make a profit they’ll be happy with. LoanWell suggests a rate in the range of 2% to 10%.
When it comes to choosing your plan, it depends on how frequently you’re going to be borrowing. Take a look at how much you’ll pay per loan to find a plan that works for you.
| Cost | Loan Credits | Cost per loan | |
|---|---|---|---|
| Single loan | $29.99 | 1 | $29.99 |
| Medium | $99.99 | 5 | $19.99 |
| Large | $149.99 | 10 | $14.99 |
How can I benefit from LoanWell?
- Choose your own rate. You’re the only one in charge of your interest rate.
- Chose your own terms. You also have no limits on how long you can take to pay off your loan — other than what your friends and family will agree to, of course.
- No credit required. You don’t need to have a credit score to get this loan.
- No cosigner necessary. In fact, you’re likely borrowing from the person who would be your cosigner on a private student loan.
How friends and family can benefit
Your friends and family can also reap rewards from funding your loan.
- They’ll make money. Funding your loan is an easy way for your friends and family to turn money into more money.
- It’s legally binding. You’re legally required to pay back your loan as scheduled, giving peace of mind a verbal agreement just can’t.
- Payments are automatic. The lender won’t have to do anything to collect payments because the servicer automatically transfers them to their account each month.
What are the drawbacks?
- You need friends or family with funds. If you’re unable to get a cosigner with a high enough income or good credit for your student loans, it’s possible you also might have trouble getting your family and friends to lend you money.
- Defaulting could damage relationships. Drawing up an official loan document may put some relatives at ease, but if you aren’t able to follow the payment schedule, you could end up hurting your standing with at least one person close to you.
- Fees. LoanWell isn’t a free service. Private student loans, on the other hand, typically cost nothing to apply for.
- More work than a private loan. Private lenders will reach out to your school and handle paying your tuition when the time comes. You’ll have to do all of this yourself if you choose LoanWell.
Refinancing your student loans with LoanWell
LoanWell wasn’t around when you were in school? You can still use it to save on your student debt by refinancing your student loans. Since you set the rates and terms, you might be able to come up with more favorable terms than what you’d get with any lender.
While you might be able to get a better deal even on federal loans, it’s important to understand what you’re giving up by refinancing them. Federal loans offer extensive deferment and forbearance programs, as well as forgiveness for public service and highly flexible repayment plans — things your friends or family might not want to or be able to give you. Think carefully about what you stand to lose before refinancing any federal student debt.
Want a traditional loan instead? Compare your options
Bottom line
LoanWell could be a much less expensive alternative to student loans if you have friends and family with enough cash to cover your costs upfront. They can benefit from it too by effortlessly collecting on interest each month. While it comes with a lot of perks most private lenders don’t offer, federal aid might still be a better deal.
Curious about your other student loan options? Check out our student loans guide to compare lenders and learn about how it all works.
Frequently asked questions
Pictures: loanwell.com
