What is Peer-to-Peer Lending?
The global credit crunch may mean an opportunity for new lending strategies, such as peer to peer lending. Banks are facing huge losses and the lack of transparency has made it hard for banks to lend between each other, opening the door for a newer, more direct type of lending, known as peer to peer lending.
Peer-to-peer, (or person-to-person) lending is just what it’s name implies. You loan money to another person, with a third party acting as the intermediary. The key to doing it this way is the opportunity to get a better return on money you lend, or a better rate on the money you borrow.
There is a downside. Just as with traditional lending, sometimes people will default on loans. The intermediary should do some kind of background check on those seeking money. For instance, Lending Club currently requires a FICO score of 660, among other criteria to loan people money. You’ll have to check with the intermediary to see exactly what the details currently are.
There’s a even a global twist to this. Kiva.com is a site that coordinates loans between lenders and businesses in developing countries. What makes it interesting is that lenders can pick individuals they want to help. I’m not sure on the returns, but one is likely knowing that you’re helping develop an economy in troubled times.
No matter what, peer to peer lending is expected to grow dramatically. With that kind of growth and better returns possible, peer to peer lending just might be the future of how we loan and borrow money.
Have you tried peer to peer lending? Any good or bad experiences? Let us know in the comments below. You can check out Lending Club here.
