Peer-to-peer lending is a term that can encompass both lending to family and friends and more formal private lending arrangements. Many of us have relied on peer-to-peer lending, at least in a casual situation. If you have borrowed or loaned money to a friend for lunch or to help out in a financial emergency you are already an experienced peer-to-peer borrower or lender. It also includes one on one lending organized by a peer-to-peer or microlending service of one sort or another. What formal peer-to-peer lending options exist? What should you do if you are considering entering into one of these situations with friends, family or business associates to protect everyone’s interests?
The rising popularity of Peer lending has been featured in the news recently, with articles appearing in a variety of publications, including USA Today. There are several sites online that allow auction style lending arrangements, including Prosper.com. In the case of a site like Prosper Marketplace, Inc. the website manages the auction, buyer identity confirmation and loan repayment. Lending Club at Lendingclub.com combines social networking with a peer-to-peer lending situation. Lending Club has currently suspended new lender registration while managing some details of the process as of the spring of 2008. These sites assess credit, risks, and other factors making it a relatively safe option for both borrowers and lenders. Those interested in charity giving may find kiva.org or microloans worthwhile cause as it allows you to lend money to small businesses and individuals in developing nations in a peer-to-peer context. With today’s credit crunch in the banking industry, this new lending phenomenon is apt to grow as more and more people look for options outside the traditional lending industry.
If you are making a private loan or borrowing from a friend, family member or associate setting up acceptable loan terms is an important part of this process. Be certain to create a simple written agreement that specifies the amount of the loan, repayment terms, and interest charges. You may also wish to include terms for default, bankruptcy and other circumstances. Should the loan be related to business costs, specify whether the loan is to the business or the individual. In the case of a large amount, you may even wish to consult an attorney regarding the loan agreement. For smaller loans, take a look atehow.com for tips on writing a family or peer lending agreement.
The current banking crisis may change how many of us borrow and lend money as more and more people opt to return to simpler options. New lending options, including peer-to-peer lending sites offer both a way to borrow money and a way to earn a bit of interest on your investment. Exploring peer-to-peer lending is an excellent choice both for borrowers and lenders, but do your research about the sites you choose or if lending to personal acquaintances, put the details on paper.