Peer-to-peer lending connects borrowers and lenders through the Internet.
South Florida Sun-Sentinel
FORT LAUDERDALE, Fla. — This is not the best time to need a loan. Banks have closed their doors to many who want home equity loans, student loans and mortgages.
In a credit crunch, borrowers who need money may ask friends and family or use their credit cards. But there’s another group you might want to try: People you meet over the Internet.
Peer-to-peer lending networks — they link borrowers with individuals willing to lend — are thriving in cyberspace. Lenders take a risk, certainly, that they won’t be repaid. Borrowers have to lay bare their credit histories and are rated by the networks. But there are good reasons for each side to do this: If you lend money on one of these networks, you often earn returns that are better than what the bank would pay on a certificate of deposit. If you are a borrower, you often do not have to pay the sky-high rates you would on a credit-card cash advance.
There are downsides, of course. Some borrowers may find their loans don’t get funded or that their credit isn’t good enough to merit a low interest rate. For lenders, the risk of loans not being repaid seems to be higher in these private arrangements than in commercial bank loans.
For Pierre Christ, a systems engineer in Miami, the risk-return trade-off is worth it. In the last 12 months, Christ has put up about $6,100 into loans at Prosper.com, the best known of the peer-to-peer lending networks.
“I like the feeling of helping someone,” Christ said.
Indeed, there’s a sense of “knowing” the borrower, because in Prosper.com’s system, borrowers tell their stories of what they’ll use the money for, post pictures and even put up recommendations from their friends on why their loans should be funded. Names are not used.
That connection seems to keep these networks working.
“I’ve been begging the credit card companies to work directly with me,” said Evangelina Altamirano, an office manager of a Miami law firm. But she couldn’t get her rates lowered. So she turned to Prosper.com and now has a $13,000 loan at just above 7 percent interest that she used to pay off her credit cards, which were charging 23 percent and 16 percent.
Only in operation for two years, Prosper.com has originated $130 million in loans.