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Social Lending: A Viable Option
to Bank Loans
by Lisa Phillips
March 2008
to Bank Loans
by Lisa Phillips
March 2008
Social Lending is the new wave in the finance industry. Also known as
integrates online social communities with financial services. People
lend and borrow money to one another, bypassing the need for banks.
It has been compared to borrowing and lending money amongst your
friends and family.
Except, in this instance, your friends and family number in the
thousands. This niche industry is emerging as the eBay of consumer
lending.
As the credit crunch continues to affect consumers, social lending has
proved to be a good option for borrowers who cannot quality for
traditional loans. These unsecured peer-to-peer loans are competed
upon by lenders often resulting in lower rates for borrowers.
Why Social Lending Works
The current U.S. credit crunch has affected even good credit
borrowers. Traditional banks are making it more difficult to get loans.
Social lending offer both lenders and borrowers better rates because
traditional banks operate on a much larger scale and have a higher
overhead. Lenders can get good rates on the return of the loans they
make and the borrower can get good rates on the loans they are
funded. “It seems that the credit crunch is accelerating our growth,"
says Renaud Laplanche, CEO of Lending Club.
According to Renaud Laplanche, “borrowers get an interest rate on an
unsecured loan that’s 2 percent to 3 percent better than they’d get
from banks, and lenders get a return of 10 percent to 12 percent —
better than many investments.”
All transactions, from beginning to end are done electronically and
online. Banks have to pay employees and maintain hundreds of
branches everyday. That cost of running a bank is ultimately passed
down to the consumer though interest rates, fees and costs. Social
lending cuts these costs by cutting out the middleman, the banks.
Traditional banks also do not afford you an opportunity to tell you
story. The decision making is credit score driven. A computer cannot
get to know you as with social lending where borrowers get a chance
to create a profile and tell their story. "When you're dealing with a
large financial institution, it may be difficult to tell your story and get
people to understand," says Douglas Dolton, CEO of Zopa.
The Drawbacks to Social Lending
The drawback of social lending is probably the very thing that makes it
attractive, traditional banks. Traditional banks offer increased financial
security because they have millions of dollars in reserves to draw upon
in case of a financial down turn.
This online form of peer to peer or person to person lending is too new
to properly assess the risks. For now, it seems to be a growing trend
and working well for many consumers as a viable alternative to bank
loans. In 2007, an estimated $647 million in peer-to-peer loans will be
made, according to Celent, a research firm.
integrates online social communities with financial services. People
lend and borrow money to one another, bypassing the need for banks.
It has been compared to borrowing and lending money amongst your
friends and family.
Except, in this instance, your friends and family number in the
thousands. This niche industry is emerging as the eBay of consumer
lending.
As the credit crunch continues to affect consumers, social lending has
proved to be a good option for borrowers who cannot quality for
traditional loans. These unsecured peer-to-peer loans are competed
upon by lenders often resulting in lower rates for borrowers.
Why Social Lending Works
The current U.S. credit crunch has affected even good credit
borrowers. Traditional banks are making it more difficult to get loans.
Social lending offer both lenders and borrowers better rates because
traditional banks operate on a much larger scale and have a higher
overhead. Lenders can get good rates on the return of the loans they
make and the borrower can get good rates on the loans they are
funded. “It seems that the credit crunch is accelerating our growth,"
says Renaud Laplanche, CEO of Lending Club.
According to Renaud Laplanche, “borrowers get an interest rate on an
unsecured loan that’s 2 percent to 3 percent better than they’d get
from banks, and lenders get a return of 10 percent to 12 percent —
better than many investments.”
All transactions, from beginning to end are done electronically and
online. Banks have to pay employees and maintain hundreds of
branches everyday. That cost of running a bank is ultimately passed
down to the consumer though interest rates, fees and costs. Social
lending cuts these costs by cutting out the middleman, the banks.
Traditional banks also do not afford you an opportunity to tell you
story. The decision making is credit score driven. A computer cannot
get to know you as with social lending where borrowers get a chance
to create a profile and tell their story. "When you're dealing with a
large financial institution, it may be difficult to tell your story and get
people to understand," says Douglas Dolton, CEO of Zopa.
The Drawbacks to Social Lending
The drawback of social lending is probably the very thing that makes it
attractive, traditional banks. Traditional banks offer increased financial
security because they have millions of dollars in reserves to draw upon
in case of a financial down turn.
This online form of peer to peer or person to person lending is too new
to properly assess the risks. For now, it seems to be a growing trend
and working well for many consumers as a viable alternative to bank
loans. In 2007, an estimated $647 million in peer-to-peer loans will be
made, according to Celent, a research firm.
More Social Lending Resources
Prosper
Borrowers and lenders meet to make
consumer lending more financially and
socially rewarding.
Lending Club
Brings together lenders and borrowers to
lend money among themselves at
competitive interest rates.
Zopa Loans
A Social Lending Network
Virgin Money
Manage Your Loans Between Friends and
Family.
Prosper
Borrowers and lenders meet to make
consumer lending more financially and
socially rewarding.
Lending Club
Brings together lenders and borrowers to
lend money among themselves at
competitive interest rates.
Zopa Loans
A Social Lending Network
Virgin Money
Manage Your Loans Between Friends and
Family.
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