Peer-to-Peer Lending - Credit crunch meets social networking
Combine the credit crunch with the inherent trust factor being cultivated within social networks, and you get peer-to-peer lending.
Today, the Digerati Life gives a comprehensive overview of the major P2P lending players : Prosper.com, Lending Club, Zopa.com, Kiva.org
And USA Today sports a research analyst's prediction on the growth of P2P lending:
We know there's a surfeit of borrowers today... why is lending on a P2P network so worthwhile and who would take the chances of unsecured lending to strangers? From USA Today:
Default rates are lower for peer-to-peer loans than for other consumer loans. Cory Moore became a lender on Prosper.com this year. To hedge against defaults, he spreads his risk by lending small sums to different borrowers. So far, he's made 170 loans, for $50 apiece.
"If one defaults, I've lost (money for) a dinner for two," says Moore, who says he's collected about $4,000 in interest from the loans. "Each loan is only $50, so I'm not worried."
P2P lending is generally short term, and is functionally an actuarial investment vehicle for the lender. Higher returns ranging from 9-16% diversified across a slew of borrowers provides a Return on Investment that's much higher than T-bills. And there's the satisfaction of helping others, and even, perhaps, growing a financial network. (Real estate professionals - take note that the good will associated with lending to the financial network is a good way to build a network).
Registration at Lending Club is like any other social network; one can send invitations to Lending Club by accessing gmail and LinkedIn accounts. The web democratization of lending and money flow was unimaginable even during the first Internet boom seven years ago... it's quite a validation of the trust factor associated with social networking.
Next up, P2P lending customized to Asian cultures - China, Korea, Vietnam - all of which have informal social lending associations.
You are dead on that with the credit crunch this is an important trend and one that needs to move to real estate. I predicted that this model would replace traditional hard money real estate lending when Prosper launched... yet this opportunity remains wide open. I for one can't wait for someone to step up and get this done.
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Thanks for featuring my post!
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The Digerati Life is a great financial planning resource!
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