What is Peer to Peer Lending?
January 8, 2008
Have you ever gone to a bank in desperate need and been turned down for a loan? Have you checked into a bank loan and realized that the combination of the loan and the excruciatingly high interest rate will put you further in the poorhouse? Are you tired of the government regulating how you pay back loans, because they seem to control your money coming and going? Then, you may be interested in learning about peer to peer lending.
When a bank turns you down or charges too much interest to justify a loan, you are pretty much stuck without any recourse. Fortunately, some financially savvy businesspeople got together and came up with the novel idea of peer to peer lending. Instead of going to a bank, struggling entrepreneurs, homeowners, people struggling under a mountain of credit debt, and virtually anyone who wants a financial backer to give them a boost, can apply for a peer loan.
Instead of going to a financial institute and repaying one lender, you can now go to a social lending site and ask for the amount of money you need and state the highest interest rate you are willing to pay. Other people that are signed up as lenders review your profile and can loan you a portion of the requested money.
The peer to peer lending sites match up you, the borrower, with one or a group of lenders that are willing to loan you the money at the rate of interest you’re offering to pay. Prospective lenders can review information about your credit and debt and decide whether they’re comfortable making a micro-loan to you. The social lending site facilitates transferring the money that is loaned to the borrower and the handling the payments back to the lenders. In return for offering the loan marketplace and facilitating the loans they charge some type of fee.
Today, the novel idea is really taking hold and is offering many people an alternative to loans from banks and other regulated financial institutions. For several examples, check out the companies listed below:
What are you initial impressions concerning peer to peer lending?
Tina
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I’ve been a lender on Prosper for a couple of years, but my activity lately has been pretty light.
I’ve had one loan paid off early, a few late payments, and no defaults, so I’ve been happy with it.
Very nice overview of peer-to-peer lending. Couldn’t have explained it better myself. I think peer-to-peer lending is a great idea, and I recently got into it myself.
My initial reaction to Prosper was that it was designed to benefit lenders more than borrowers. Interest rates seem higher for higher-grade borrowers than I thought you could find in the traditional lending market. Of course, one might argue that people are turning to Prosper because they can’t be financed in a traditional setting.
I think it’s a great idea. I haven’t participated on either side yet, but I’ll probably try lending on prosper at some point in the future.
I think peer to peer lending is a great idea. Especially considering the predictions regarding the future economy.
You might want to add Microplace and MyC4 to your overview.
Claus
P2P-Banking.com
I will rate this blog all out of all. Very good blog on peer to peer lending. Before reading this blog I was a bit confuse about this peer to peer lending idea. Your info helped me lot to understand the concept. Thanks again for such a nice post.
Larry
http://www.thinkcash.com
Kiva is for third world entrepreneurs (just like MyC4), so I don’t think that they should be included in any list of P2P lending sites targeting regular borrowers.
Also, Zopa is hardly a P2P lending site since the borrowers take out a loan from a credit union. The only P2P aspect of it is that lenders (who lend on a risk free CD) can give some of their interest to borrowers as a gift to reduce a borrower’s payment. Odd set up if you ask my.
Today, the only working P2P lending sites, where lenders lend to unknown borrowers in the US, are Lending Club and Prosper.
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Just FYI, your link to Lending Club is broken, you should probably just link to the homepage.
Overall, nice review of peer to peer lending though!
DebtKid a peer lending enthusiast!
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