Credit.com, Wherever you stand, we stand by you.®
News | Education | Answers | Forum | CreditBloggers | Status
Credit & DebtPersonal FinanceEconomic CrisisHousing MarketEmployment TrendsExpert Insight
Subscribe   Print   

Peer-to-peer lending; good or bad idea?

02.26.09
By John Ulzheimer

With the current credit crisis and lenders pulling back on their lending volume, it seems that Peer-to-Peer borrowing may very well be a more viable option for consumers who are tired of getting declined by banks. Add to that the fact that consumers these days are borrowing money from other consumers at better rates than real lenders and it seems like a slam-dunk, no-brainer option.

What is Peer-to-Peer, or P2P, lending? P2P lending is when consumers like you and I choose to allow other consumers to borrow money outside of the traditional brick and mortar banking environment. But instead of me just handing you a pile of cash or writing you a check, it is a formalized transaction complete with interest rates and a payback amortization schedule.  

There are several companies who facilitate P2P lending. Prosper, Lending Club, Zopa, and Virgin Money are the most commonly known and thus are the most popular. The way it normally works is a consumer makes a case for a loan and a group of lenders cobble together enough money to fund some or all of it. Borrowers can do what is unheard of in the banking environment: They can actually state their case and fully explain why they need the money and what they’re going to do with it. This is both a blessing and a curse for the lender.

I’ve always told people who ask about P2P lending that it’s perfectly safe if you’re the borrower and not-so-safe if you’re the lender. Look at the number of banks that are failing. And look at the amount of money being lost by banks that profess to know all that there is to know about lending money. And now look in the mirror. Do you honestly think you have what it takes to be successful at what most banks are failing at miserably? My suggestion to anyone interested in P2P lending is stick to being a borrower. If you choose to be a lender, pretend like you’re in Las Vegas playing Black Jack. Your odds of winning may be about the same.



More Experts Articles | News Home | Discuss in our Forum